Ownership Dynamics After Partial Privatization: Evidence from China
60 Pages Posted: 2 Mar 2007 Last revised: 26 Aug 2013
Date Written: July 1, 2007
Abstract
This paper studies the determinants of ownership dynamics in 430 Chinese state-owned enterprises that experienced a share issuing privatization during 1994-2002. For this purpose, we build probit models to investigate the driving forces behind a further decrease in government ownership during the first five listing years. We thereby explore the nature of this decrease, by differentiating between the issuance decision, where state ownership dilutes as a result of new public share offerings, and the divestment decision, where the government sells some of its own shares to non-state-owned institutions. We find that better-performing and highly leveraged SOEs with larger investment opportunities are more likely to issue new shares after SIP. Yet, the issuance decision is also timed when market conditions are favorable. The results of a split-sample regression analysis further show that firm-level financing needs and overall market conditions became even more important drivers of the issuance decision over time. Regarding the divestment decision, we find that the Chinese government is more likely to sell its shares in the smaller and bad-performing firms. Variables that capture the size of potential managerial incentive problems are important but play no incremental role after controlling for performance at the level of the SOE.
Keywords: privatization, governance, SEO, divestment, asymmetric information
JEL Classification: G34, G38
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