What Will Privatization Bring: The Non-Tradable Share Issue Reform in China

25 Pages Posted: 26 Apr 2007 Last revised: 25 Sep 2012

See all articles by Jinghan Cai

Jinghan Cai

University of Scranton

Yuming Li

California State University

Le Xia

BBVA Research

Date Written: April 1, 2007


This paper describes the background, the process, and the market reaction of Chinese crucial privatization program, namely the Non-tradable Share Issue Reform. We document the following findings: (1) The privatization program causes economically moderate and statistically significant cumulative abnormal return (-60, 60) of 4.34% (median: 4.86%). (2) The privatization program brings tradable shareholders enormous buy-and-hold returns. The short run BHR amounts to 54.29% (median: 51.26%), and the medium run BHR reaches to as high as 78.22% (median: 76.01%), both significantly different from zero. The NBHR (BHR net of buy and hold the market index) is also economically large and statistically significant. (3) The privatization program activates the market, increases both the volatility and the liquidity. (4) Although the comovement of individual stocks with the market does not change significantly, the price efficiency increases both in the short run and the medium run.

Keywords: privatization, wealth effect, price efficiency, China

JEL Classification: L33, G14

Suggested Citation

Cai, Jinghan and Li, Yuming and Xia, Le, What Will Privatization Bring: The Non-Tradable Share Issue Reform in China (April 1, 2007). Available at SSRN: https://ssrn.com/abstract=981682 or http://dx.doi.org/10.2139/ssrn.981682

Jinghan Cai (Contact Author)

University of Scranton ( email )

800 Linden St
univ of scranton
Scranton, PA na 18510
United States

Yuming Li

California State University ( email )

School of Business Box 6848
Fullerton, CA 92834-9480
United States
714-278-2217 (Phone)
714-278-2161 (Fax)

Le Xia

BBVA Research ( email )

10/F., Tower Two, IFC
Hong Kong
Hong Kong
85225823132 (Phone)
85225879717 (Fax)

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