The reversal of privatization in China: A political economy perspective |
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| Institution: | 1. School of Economics and Management, Tsinghua University, China;2. National School of Development, Peking University, China;3. School of Finance, Renmin University of China, China;4. Fanhai International School of Finance, Fudan University, China;1. Henry B. Tippie College of Business, Department of Finance, University of Iowa, 108 Pappajohn Business Bldg., Iowa City, IA 52242-1994, United States of America;2. Peter T. Paul College of Business and Economics, Department of Accounting and Finance, University of New Hampshire, 10 Garrison Avenue, Durham, NH 03824-2325, United States of America;1. Department of Finance and Economics, Mississippi State University College of Business, Post Office Box 9580, 312K McCool Hall, Mississippi State, MS 39762-9580, United States of America;2. Department of Finance, Banking & Insurance, Appalachian State University Walker College of Business, ASU Post Office Box 32058, 3065 Peacock Hall, Boone, NC 28608, United States of America;1. Wells Fargo Asset Management, United States of America;2. Saint Louis University, United States of America;3. University of Nevada, Reno, United States of America;1. Susquehanna University, United States of America;2. Wright State University, United States of America;3. Carlos Alvarez College of Business, University of Texas at San Antonio, United States of America |
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| Abstract: | We document reversals of privatization in China—local governments re-possessing ownership stakes in a quarter of previously privatized firms during 1998–2007, a period when the privatization process was still ongoing. This type of ownership restructuring helped ease the unemployment burden in the local labor markets, and was more likely to occur in firms located in provinces led by an official without strong political status in the Chinese Communist Party. A reversal in privatization led to higher leverage, lower profitability and lower labor productivity. Our paper sheds light on how frictions in the political structure affect the implementation of economic policies in a top-down system. |
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