Political economy of private firms in China

The sweeping change in political economy associated with the rapid growth of the private sector in China is rarely studied empirically in the economics literature. Using four cross-sectional surveys of private firms between 1995 and 2010, we examine the dynamics of rent creation from Party membership and other political connections when the regime changed from anti-capitalistic to pro-capitalistic during the period 2002–2004. We find that entrepreneurs with political connection enjoyed significantly more rents only after the constitutional amendments. This finding sheds lights on the nature of the political economy of today’s Chinese economy. Endogeneity/causality problems are addressed.     

The impact of privatization on firm performance in a transition economy

The Vietnamese privatization programme, launched in 1992, differs from the usual Western privatization programmes in terms of the residual percentage of shares owned by the state and the portion of shares owned by insiders. This begs the question whether these differences influence the effects of the programme on firm performance. This study measures the impact of privatization on firm performance in Vietnam by comparing the pre‐ and post‐privatization financial and operating performance of 121 former state‐owned enterprises (SOEs). We find significant increases in profitability, sales revenues, efficiency and employee income. Results of applying the ‘difference‐in‐difference’ (DID) method, wherein a control group of firms is used to pick up the influence of other determinants of firm performance, suggest that the performance improvements may indeed be associated with equitization. Regression analyses reveal that firm size, residual state ownership, corporate governance and stock market listing are key determinants of performance improvements.     

Disagreement between rating agencies and bond opacity: A theoretical perspective

In this paper, we explicitly model a bond rating process under varying degrees of bond opacity and derive conditions under which disagreements between rating agencies (rating splits) can serve as a useful proxy for opacity in empirical analyses.     

Returns of Small Growth Stocks: An Empirical Analysis

I investigate the mean reversion tendency of small growth stocks. Using a carefully articulated research design employing established and empirically tested principles, my findings should support or refute the anecdotal evidence that small growth stocks make superior investments. The primary motivation for the study springs from the documented differential preference among investors for value and growth stocks. Despite evidence that value stocks tend to outperform growth stocks, investors retain strong interest in growth stocks. Yet in examining the performance of Business Week’s (BW), smaller capitalization companies (called “Hot Growth Companies”) with respect to the overall financial market, Bauman et al. [2002] found positive excess returns in the pre-publication period but negative excess returns in the post-publication period. A limitation of their study is that their analyses relied on only three criteria: sales, BW rank and return on capital, which do not represent completely a firm’s financial health. I replicate Bauman et al.’s study but use a more robust and representative variable set to test the mean reversal hypothesis — Forbes’ financial criteria — and I focus on six variables. In the current study, I look at 4,200 companies listed in Forbes from 1980 to 2000. The results of the expanded study substantiate Bauman et al.’s [2002] study showing that there are positive excess returns in the pre-publication period, but negative excess returns in the post-publication period. An expanded future study will look at five additional variables to see if they make a significant difference on the effects of the returns of small growth stocks.     

Politics and privatization in Central and Eastern Europe

This article examines how government ideology influenced privatization efforts in Central and Eastern Europe after the transition from socialism. We analyse a dataset of privatization indicators covering small‐ and large‐scale industries in 19 transition countries over the period 1990–2007 and introduce a government ideology index. The results suggest that market‐oriented governments promoted the privatization of small‐scale industries more than that of large‐scale ones. In the rapid transition process in the early 1990s, leftist governments stuck to public ownership more strongly than in the following period from the mid‐1990s to 2007. The remarkable differences between leftist and right‐wing governments concerning both the role of government in the economy and the basic elements of political order are in line with developments in OECD countries, and may also hold further implications for transition and democratizing countries outside Central and Eastern Europe.     

Reallocation of corporate resources and managerial incentives in internal capital markets

Diversified firms often trade at a discount with respect to their focused counterparts. The literature has tried to explain the apparent misallocation of resources with lobbying activities or power struggles. We show that diversification can destroy value even when resources are efficiently allocated ex post. When managers derive utility from the funds under their purview, moving funds across divisions may diminish their incentives. The ex ante reduction in managerial incentives can more than offset the increase in firm value due to the ex post efficient reallocation of funds. This effect is robust to the introduction of monetary incentives. Moreover we show that asymmetries in size and growth prospects increase the diversification discount.     

Excessive continuation and dynamic agency costs of debt

This paper analyses the incentives of the equityholders of a leveraged company to shut it down in a continuous time, stochastic environment. Keeping the firm as an ongoing concern has an option value but equity and debt holders value it differently. Equityholders’ decisions exhibit excessive continuation and reduce firm's value. Using a compound exchange option approach, we characterise the resulting agency costs of debt, derive the “price” of these costs and analyse their dynamics. We also show how agency costs can be reduced by the design of debt.     

Evaluating the Relative Efficacy of the Marketing Function in the Construction Complex of Ukraine

The break up of the USSR pushed 15 constituent states into a transition phase from a regulated economy to a free market style one. Partially, this involved the wholesale importation of a variety of theories, strategies, and operational plans. This paper seeks to examine the efficiency of the use of the marketing communications mix in medium and large firms in the Ukraine’s construction complex during the transition period to a market oriented economy. In order to do so, a survey of the most significant, privately owned firms in the industry was conducted. A variety of quantitative measures were employed, including econometric estimates and certain elasticity coefficients that allowed us to asses existing tendencies in the industry, identify problems, and to make tentative recommendations.     

民营企业与境外经贸合作区建设——基于温州地区民营企业的思考

境外经济贸易合作区是指在国家统筹指导下,国内企业在境外建设的或参与建设的基础设施较为完善、产业链较为完整、辐射和带动能力强、影响大的加工区、工业园区、科技产业园区等各类经济贸易合作区域.2006年,商务部把推动建设境外经济贸易合作区作为十三项重点工程之一,建设境外经济贸易合作区政策由此成为我国政府鼓励和支持有条件的企业扩大对外投资的重要平台.     

Political participation and entrepreneurial initial public offerings in China

This paper examines the economic consequences of political participation by entrepreneurs in China. Using unique data on political participation and initial public offerings by entrepreneurial firms, we find that firms controlled by entrepreneurs who participate in politics exhibit superior post-IPO performance. We also find that firms characterized by political participation are subject to less underpricing. Furthermore, the superior performance is concentrated among firms that operate in an environment characterized by rich rent-seeking opportunities instead of abundant business opportunities, suggesting that political participation is facilitating rent seeking rather than serving simply as a proxy for political recognition for entrepreneurship.     

民营企业国际化:现状评价与路径建议

自90年代初期以来,中国民营企业国际化实践已历经十多年,特别在近五年间,由于国家“走出去”战略创造的有利环境而获较大进展。绝对意义上来看,中国民营企业国际化成效显著;但相对来说,无论与国有企业国际化进程,还是与民营企业自身发展规模相比较,民营企业国际化的成效尚显不足也是不争的事实。客观地说,中国民营企业因其从事主体产业特点、制度环境以及经营者素质等因素,在国际化过程中不可刻意模仿国际大型跨国公司的做法,必须另辟蹊径。民营企业国际化现状评价近年以来关于民营企业国际化的报道颇多,而在众多民营企业国际化案例中,浙江…     

Can industry regulators learn collusion structures from information-efficient asset markets?

This note combines a dynamic industrial organization model, in which an industry is subject to exogenous processes of market-size and collusion structure, with a consumption-based asset pricing model for the shares in the industry’s firms. Three main findings emerge for our model under the assumption of information-efficient asset markets. First, the volatility of a firm’s share price is exclusively driven by the volatility of the industry’s market-size. Second, the volatility of a firm’s price-dividend ratio is exclusively driven by the volatility of the industry’s collusion structure whereby high (resp. low) ratios indicate less (resp. more) collusion. Third, for non-volatile collusion structures the price-dividend ratio is constant across different collusion structures.     

Economic transition and gender differentials in wages and productivity: Evidence from Chinese manufacturing enterprises

We use firm-level data to analyze male–female wage differences in Chinese industry in the late 1990s. Our estimates indicate that employers' discrimination against women was not a significant source of the gender wage gap in Chinese state-owned enterprises. Instead, we find that the relative wage of unskilled female to male workers was higher than their relative productivity. This result indicates that unskilled female workers in the state sector had historically received wage premiums and consequently accounted for a disproportionate share of the sector's labor surplus.     

The role of the state in resolving business disputes in China

In this paper, we follow the theoretical framework proposed by Djankov et al. (2003) to investigate the role of the state in resolving business disputes and its impact on enterprise performance. Using a survey of private enterprises in China, we first construct an index to quantify the power of the state vis-à-vis the market in resolving business disputes, and then find that enterprises located in regions where the government has a greater relative power enjoy better performance. Our results suggest that the regulatory state has played a positive role in the economic transition in China.     

Managerial incentives, CEO characteristics and corporate innovation in China’s private sector

We use a unique World Bank survey of 1088 private manufacturing firms from 18 Chinese cities over the period 2000-2002 to empirically examine the roles of managerial incentives and CEO characteristics in a firm’s innovation activities. We look at both innovation effort (R&D intensity) and innovation performance measures such as new product sales. We obtain the following main results: (1) the presence of CEO incentive schemes increases both corporate innovation effort and innovation performance; (2) sales-based performance measures in the incentive scheme, as compared with profit-based performance measure, are more conducive to firm innovation; and (3) CEO education level, professional background and political connection are positively associated with firm’s innovation efforts. The main results are robust to endogeneity tests with instrumental variables. We also discuss some important policy implications.     

Collective relationship banking and private information monitoring in Korea1

This paper introduces the notion of collective relationship banking (CRB) as a mechanism for monitoring private information and characterizes the probability of such a banking relationship existing when the borrowing firms have heterogeneous vertical ownership structures. Using a Korean firm‐level panel dataset, the empirical results of the paper suggest that firms with smaller holding companies’ ownership stakes are more likely to choose CRB. This can be explained in terms of CRB as a means to overcome informational asymmetries as holding companies can provide indirect monitoring. The paper then addresses policy concerns associated with corporate restructuring which may create a more concentrated banking relationship with a few dominant banks.