A re-examination of China’s share issue privatization

Previous studies show that in contrast to evidence that share issue privatization (SIP) in most other countries have improved firm profitability, China’s SIP of the 1990s had no such effect. We argue that the main reason for the failure of China’s SIP is likely to have been the weak institutional environment in place at that time. We examine China’s SIP in a more recent period in which the institutional environment was greatly improved. Using a matching sample method, we find that SIP firms continued to experience negative post-SIP profitability changes in our sample period. However, their performance decline was significantly less than that of their matched non-SIP SOEs. We also find that the introduction of the independent director rule helped to improve firm performance. Our results reconcile the findings of the SIP effect in China with international evidence and illustrate the importance of a developed capital market to ensuring the success of privatization schemes.     

Determinants of state equity ownership,and its effect on value/performance: China's privatized firms

Evidence on the relationship between state ownership and performance in China's privatized firms is convex, concave and linear. Hence, the nature of this relationship is not resolved. This study examines this relationship for a larger, more recent sample of 4315 firm year observations of privatized Chinese firms during 1996–2003. Results support the hypothesis of a convex relationship between state ownership and performance showing benefits from strong privatization and state control. Not only is ownership structure found to affect performance, but also ownership concentration and balance of power jointly affect performance. Chinese firms with mixed control show significantly poorer performance than state or private controlled firms affirming the problem of ambiguity of ownership control, property rights, agency issues, profits and welfare objectives. New determinants of state ownership in China's firms are strategic importance, legal ownership, profitability, and market performance. Privatization benefits because there is a causal relation between ownership and performance.     

Can corporatization improve the performance of state-owned enterprises even without privatization?

This paper examines an important reform program in China concerning State Owned Enterprises (SOEs), namely, corporatization without privatization. It finds that corporatization has had a significantly positive impact on SOE performance. It further shows that the sources of efficiency engendered by corporatization can be traced to the reform of the internal governance structure of these firms. The results indicate that, even without privatization, corporate governance reform is potentially an effective way of improving the performance of SOEs; such reforms represent a policy alternative for countries seeking to restructure SOEs without massive privatization. The results also suggest that it may be optimal for governments to carry out corporatization of SOEs before eventual privatization.     

Does Government Subsidy Affect Firm Survival? Evidence from Chinese Manufacturing Firms

ABSTRACT

This article applies a matching approach to deal with the selection bias and use the complementary log-log model to analyze the impacts of subsidy on Chinese manufacturing firms’ survival from 1998 to 2007. Our empirical results show that government subsidies significantly decrease the likelihood of firm exit. However, the effect decreases as the level of subsidies increases for private and foreign firms, but displays a nonlinear relationship across subsidy levels for SOEs. We also show the effects vary across the levels of institutional quality measured by the prevalence of rent seeking and government intervention. Further results suggest that the potential channels include increased investment in intangible and fixed assets as well as enhanced profitability.     

SHORT‐TERM EFFECTS OF PRIVATIZATION ON OPERATING PERFORMANCE IN THE CZECH REPUBLIC

In this article I use a sample of 178 Czech firms that were in the first wave of voucher privatization to test changes in efficiency and profitability. Based on a previous study's methodology, nonparametric tests reveal that efficiency and profitability decreased immediately following privatization. This is in contrast to earlier studies that find privatization increases these measures. Changes in firms' operations do not vary significantly by size or ownership but do vary by industry type, with nonmanufacturing firms having more positive (or less negative) changes after privatization. Evidence indicates that in spite of the disappointing findings, positive operating performance changes are taking place, such as a decrease in employment. JEL classification: G32, L33, 052     

Investment efficiency,state-owned enterprises and privatisation: Evidence from Viet Nam in Transition

Our research firstly tests the difference in investment efficiency between state-owned enterprises (SOEs) and private firms and secondly evaluates the effect of privatisation and equitisation policies on the investment efficiency of former state owned enterprises (SOEs). We use a novel dataset from Viet Nam which covers large and non-listed SMEs across construction, manufacturing, and service sectors. Our methodology uses a structural model to test the relationship between Tobin's Q and capital spending. While evident differences in investment efficiency are found across heterogeneous groups of private firms (size, industry, financially constrained and location), we find no evidence of investment spending being linked to marginal returns by SOEs across all sectors and size classes. However, former SOEs that have been privatised and equitized with a minority state shareholding display positive links between Q and investment. In fact, the link is stronger for these firms than for private firms. Differences are also evident across size and sector highlighting that the method of divestment chosen by government shareholders has a differential impact on efficiency across groups of firms and industries.     

Operating and stock market performance of state-owned enterprise privatizations: The Spanish experience

We investigate the operating and stock market performance of Spanish state-owned enterprises (SOEs) privatized through public share issue offerings (SIPs) from 1990 to 2001, when the last SIP was conducted. We compare the performance of SOEs and privately-owned firms. We find significant operating improvements in Spanish SOEs after the privatization. Specifically, they show significant increases in income efficiency, real sales and employment. Spanish governments tried to minimize the foregone proceeds when selling SOE shares and underpriced them lower than private firms. We relate these results with the pressure of the Maastricht Treaty fiscal criteria, as well as lower information asymmetries between firms and investors. Finally, we do not find long-term abnormal stock market performance after SIPs.     

Partial Privatization and Firm Performance

Most privatization programs begin with a period of partial privatization in which only non‐controlling shares of firms are sold on the stock market. Since management control is not transferred to private owners it is widely contended that partial privatization has little impact. This perspective ignores the role that the stock market can play in monitoring and rewarding managerial performance even when the government remains the controlling owner. Using data on Indian state‐owned enterprises we find that partial privatization has a positive impact on profitability, productivity, and investment.     

Political connections,tax benefits and firm performance: Evidence from China

This paper investigates the different effects of political connections on the firm performance of state-owned enterprises (SOEs) and privately owned enterprises. Using data on Chinese listed firms from 1999 to 2007, we find that private firms with politically connected managers outperform those without such managers, whereas local SOEs with connected managers underperform those without such managers. Moreover, we find that private firms with politically connected managers enjoy tax benefits, whereas local SOEs with politically connected managers are prone to more severe over-investment problems. Our study reconciles the mixed findings of previous studies on the effect of political connections on firm performance.     

The financial and operating performance of China's newly listed H-firms

This study compares pre- and post-listing financial and operating performance for a complete sample of H-firms that are incorporated in Mainland China and listed in Hong Kong between 1993 and 2000. Theoretically, there are two major opposing influences on the performance change of these newly listed firms: negative initial public offering (IPO) effect and positive privatization effect. Our major findings are: (1) the IPO effect dominates the privatization effect, so that the H-firms experienced a significant decrease in profitability and operating efficiency after listing, and (2) the performance of a control sample of newly listed private firms declined more than that of the H-firms, probably because the positive privatization effect somewhat offset the negative IPO effect for the H-firms. This paper is the first to document the positive effect of privatization in oversea listed Chinese companies.