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

See all articles by Hongbin Li

Hongbin Li

Chinese University of Hong Kong - Department of Economics

Scott Rozelle

University of California, Davis - Department of Agricultural and Resource Economics

Date Written: November 2001

Abstract

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

Li, Hongbin and Rozelle, Scott, Insider Privatization with a Tail: The Buyout Price and Performance of Privatized Firms in Rural China (November 2001). UC Davis Working Paper No. 01-017, Available at SSRN: https://ssrn.com/abstract=335120 or http://dx.doi.org/10.2139/ssrn.335120

Hongbin Li

Chinese University of Hong Kong - Department of Economics ( email )

Shatin, N.T.
Hong Kong

Scott Rozelle (Contact Author)

University of California, Davis - Department of Agricultural and Resource Economics ( email )

One Shields Avenue
Davis, CA 95616
United States
530-752-9897 (Phone)

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