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Decentralized Privatization and Change of Control Rights in China

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  • Jie Gan
  • Yan Guo
  • Chenggang Xu

Abstract

The design and implementation of privatization in China is unique in that both are decentralized and administered by the local governments. Based on a proprietary survey data set containing 3,000 firms in over 200 cities, this paper studies privatization choices and outcomes, as well as the mechanism behind the outcomes. We find that less political opposition to labor downsizing and greater fiscal capacity prompt cities to choose direct sales to insiders (MBOs). This method transfers control rights to private owners, retains limited government supports, imposes hardened budget constraints, allows for restructuring, and achieves performance improvement. Received September 8, 2015; editorial decision February 3, 2017 by Editor Andrew Karolyi.

Suggested Citation

  • Jie Gan & Yan Guo & Chenggang Xu, 2018. "Decentralized Privatization and Change of Control Rights in China," The Review of Financial Studies, Society for Financial Studies, vol. 31(10), pages 3854-3894.
    • Handle: RePEc:oup:rfinst:v:31:y:2018:i:10:p:3854-3894.
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    3. Leippold, Markus & Wang, Qian & Zhou, Wenyu, 2022. "Machine learning in the Chinese stock market," Journal of Financial Economics, Elsevier, vol. 145(2), pages 64-82.
    4. Wang, Zhibin & Li, Zelei, 2023. "Does minority shareholder activism enhance corporate innovation? Evidence from China," Finance Research Letters, Elsevier, vol. 54(C).
    5. Kong, Dongmin & Kong, Gaowen & Liu, Shasha & Zhu, Ling, 2022. "Does competition cause government decentralization? The case of state-owned enterprises," Journal of Comparative Economics, Elsevier, vol. 50(4), pages 1103-1122.
    6. Huang, Ke & Zhu, Ying, 2022. "China’s secondary privatization and corporate investment efficiency," Research in International Business and Finance, Elsevier, vol. 61(C).
    7. Oleksandr Talavera & Shuxing Yin & Mao Zhang, 2022. "Political motives of excess leverage in state-owned firms," Discussion Papers 22-04, Department of Economics, University of Birmingham.
    8. Su, Zhiwei & Xue, Yi, 2023. "Takeover deterrence with state ownership: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 146(C).
    9. Wang, Congcong & Wang, Chong & Long, Huaigang & Zaremba, Adam & Zhou, Wenyu, 2024. "Green bond credit spreads and bank loans in China," International Review of Financial Analysis, Elsevier, vol. 94(C).
    10. Wang, Wei & Wang, Hua & Wu, Ji (George), 2021. "Mixed ownership reform and corporate tax avoidance: Evidence of Chinese listed firms," Pacific-Basin Finance Journal, Elsevier, vol. 69(C).
    11. Dong Shao & Shukuan Zhao & Shuang Wang & Hong Jiang, 2020. "Impact of CEOs’ Academic Work Experience on Firms’ Innovation Output and Performance: Evidence from Chinese Listed Companies," Sustainability, MDPI, vol. 12(18), pages 1-21, September.
    12. Hennicke, Moritz & Lubczyk, Moritz & Mergele, Lukas, 2020. "The big sell: Privatizing East Germany's economy," ZEW Discussion Papers 20-043, ZEW - Leibniz Centre for European Economic Research.
    13. Fuxiu Jiang & Kenneth A Kim, 2020. "Corporate Governance in China: A Survey [The role of boards of directors in corporate governance: a conceptual framework and survey]," Review of Finance, European Finance Association, vol. 24(4), pages 733-772.
    14. Zhang, Xiaoqian & Yu, Mingqiang & Chen, Gaoquan, 2020. "Does mixed-ownership reform improve SOEs' innovation? Evidence from state ownership," China Economic Review, Elsevier, vol. 61(C).
    15. Wang, Chang & Guo, Yue & Yang, Yu & Chen, Shiyi, 2022. "The environmental benefits of electricity industry restructuring in China: Ownership mixing vs. vertical unbundling," Energy Economics, Elsevier, vol. 115(C).
    16. Liu, Wenjun & Lin, Guoyu & He, Qian, 2024. "Enhanced management information disclosure responsibilities and corporate risk-taking: Evidence from the accountability system for errors in China," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 511-531.
    17. Qiao, Fang, 2024. "Do analysts disseminate anomaly information in China?," Journal of Banking & Finance, Elsevier, vol. 165(C).
    18. Jin, Xiao Meng & Mai, Yong & Cheung, Adrian Wai Kong, 2022. "Corporate financialization and fixed investment rate: Evidence from China," Finance Research Letters, Elsevier, vol. 48(C).
    19. Bai, Min & Fu, Yumei & Sun, Mingwei, 2023. "Corporate diversification and labor investment efficiency: Evidence from China," Economic Modelling, Elsevier, vol. 127(C).
    20. Qiankun Gu & Jeong‐Bon Kim & Ke Liao & Yi Si, 2023. "Decentralising for local information? Evidence from state‐owned listed firms in China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(5), pages 5245-5276, December.
    21. Haixiang Yao & Shenghao Xia & Hao Liu, 2024. "Return predictability via an long short‐term memory‐based cross‐section factor model: Evidence from Chinese stock market," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 43(6), pages 1770-1794, September.

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