Insider Privatization with a Tail: The Buyout Price and Performance of Privatized Firms in Rural China
UC Davis Working Paper No. 01-017
49 Pages Posted: 10 Nov 2003
Date Written: November 2001
This paper studies insider privatization in transition economies. We show theoretically that the underperformance of insider-privatized firms could be due to the manager-cum-owner's lack of incentives after privatization. A screening theory predicts that a firm's postprivatization incentives increase with the firm's buyout price. The empirical results show that the buyout price decreases with the degree of information asymmetry and that a firm's postprivatization performance increases with the buyout price. We also find that the performance of premium-paying firms converges with that of private firms after privatization; in contrast, heavily discounted firms perform indistinguishably from government-owned firms.
Keywords: insider privatization, manager-cum-owner's lack of incentive, buyout price performance, screening
JEL Classification: D21, D82
Suggested Citation: Suggested Citation