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Insider Privatization With A Tail: The Buyout Price And Performance Of Privatized Firms In Rural China

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Author Info
Li, Hongbin
Rozelle, Scott

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Abstract

This paper studies insider privatization in transition economies. We show theoretically that the underperformance of insider-privatized firms could be due to the manager-cum-owner's lack of incentives after privatization. A screening theory predicts that a firm's postprivatization incentives increase with the firm's buyout price. The empirical results show that the buyout price decreases with the degree of information asymmetry and that a firm's postprivatization performance increases with the buyout price. We also find that the performance of premium-paying firms converges with that of private firms after privatization; in contrast, heavily discounted firms perform indistinguishably from government-owned firms.

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Paper provided by University of California, Davis, Department of Agricultural and Resource Economics in its series Working Papers with number 11968.

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Date of creation: 2001
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Handle: RePEc:ags:ucdavw:11968

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Keywords: Political Economy;

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    Other versions:
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    Other versions:
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  11. Yuanzheng Cao & Yingyi Qian & Barry R. Weingast, 1999. "From federalism, Chinese style to privatization, Chinese style," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(1), pages 103-131, March. [Downloadable!] (restricted)
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  16. Putterman, Louis, 1997. "On the past and future of china's township and village-owned enterprises," World Development, Elsevier, vol. 25(10), pages 1639-1655, October. [Downloadable!] (restricted)
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