Decentralized Privatization and Change of Control Rights in China

Jie Gan, Yan Guo and Chenggang Xu

The Review of Financial Studies, 2018, vol. 31, issue 10, 3854-3894

Abstract: The design and implementation of privatization in China is unique in that both are decentralized and administered by the local governments. Based on a proprietary survey data set containing 3,000 firms in over 200 cities, this paper studies privatization choices and outcomes, as well as the mechanism behind the outcomes. We find that less political opposition to labor downsizing and greater fiscal capacity prompt cities to choose direct sales to insiders (MBOs). This method transfers control rights to private owners, retains limited government supports, imposes hardened budget constraints, allows for restructuring, and achieves performance improvement. Received September 8, 2015; editorial decision February 3, 2017 by Editor Andrew Karolyi.

Date: 2018
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