Banks and Enterprise Privatization in China

Loren Brandt (), Hongbin Li and Joanne Roberts ()

The Journal of Law, Economics, and Organization, 2005, vol. 21, issue 2, 524-546

Abstract: Drawing on a unique dataset we collected in 1998 and 2000, this article examines the determinants of privatization of township and village enterprises in China. Our theoretical model explicitly considers the role of banks in determining privatization. We find that improved human capital and incentives of bank managers as well as deteriorating bank liquidity lead to privatization. We also analyze the conditions under which shutdown might be preferred to privatization as a method to divest of government-owned firms. We find empirical evidence that is consistent with our model's predictions. Copyright 2005, Oxford University Press.

Date: 2005
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