Profiting from Government Stakes in a Command Economy: Evidence from Chinese Asset Sales

Charles Calomiris, Raymond Fisman and Yongxiang Wang

No 13774, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We document the market response to an unexpected announcement of proposed sales of government-owned shares in China. In contrast to the "privatization premium" found in earlier work, we find a negative effect of government ownership on returns at the announcement date and a symmetric positive effect in response to the announced cancellation of the government sell-off. We argue that this results from the absence of a Chinese political transition to accompany economic reforms, so that the positive effects on profits of political ties through government ownership outweigh the potential efficiency costs of government shareholdings. Companies with former government officials in management have positive abnormal returns, suggesting that personal ties can substitute for the benefits of government ownership. The "privatization discount" is higher for firms located in Special Economic Zones, where local government discretionary authority is highest. This is consistent with the view that firms in these locations are more dependent on government connections. We also find that companies with relatively high welfare payments to employees, which presumably would fall with privatization, benefit disproportionately from the privatization announcement.

JEL-codes: G15 G38 H11 L33 (search for similar items in EconPapers)
Date: 2008-02
New Economics Papers: this item is included in nep-cna, nep-dev and nep-tra
Note: CF POL
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Citations: View citations in EconPapers (2)

Published as Calomiris, Charles W. & Fisman, Raymond & Wang, Yongxiang, 2010. "Profiting from government stakes in a command economy: Evidence from Chinese asset sales," Journal of Financial Economics, Elsevier, vol. 96(3), pages 399-412, June.

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