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China’s secondary privatization: new evidence on controlling shareholders tunnelling

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  • Wei Huang

Abstract

This article utilizes the 2005 split-share structure reform (SSSR) in China as a natural experiment and conducts difference-in-differences (DID) tests to analyse corporate governance changes among Chinese SOEs compared to POEs. We show that tunnelling significantly reduced in both POEs and SOEs after the SSSR. More importantly, we find a significant and positive ‘privatization effect’ on SOEs’ tunnelling activities during the post-reform period suggesting the reductions of tunnelling were smaller among SOEs than POEs following the SSSR. In contrast, excess returns around the SSSR indicate that investors expected a negative ‘privatization effect’ on SOEs’ tunnelling. These findings suggest that the quality of corporate governance did not improve among SOEs as a result of the secondary privatization as the stock market expected without fundamental changes to firm ownership and control following the SSSR. The benefits of privatization accrue to the government controlling shareholders rather than minority investors.

Suggested Citation

  • Wei Huang, 2017. "China’s secondary privatization: new evidence on controlling shareholders tunnelling," Applied Economics, Taylor & Francis Journals, vol. 49(2), pages 188-201, January.
    • Handle: RePEc:taf:applec:v:49:y:2017:i:2:p:188-201
    DOI: 10.1080/00036846.2016.1192279
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    Cited by:

    1. Qiao, Zhuo & Pukthuanthong, Kuntara, 2019. "Has the difference in stock liquidity and stock returns between Chinese state owned and privately owned enterprises become smaller?," Finance Research Letters, Elsevier, vol. 28(C), pages 39-44.
    2. Jan Hagemejer & Joanna Tyrowicz, 2020. "A New Instrument for Measuring the Local Causal Effect of Privatisation on Firm Performance," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 35-52.

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