What makes privatization work? The case of China

Abstract

Using a unique hand-collected nationwide survey, this paper studies China’s privatization, by far the largest one in human history. We find that privatization in China has improved performance, but only for firms bought out by managers (MBOs). Consistent with improved performance, MBO firms are less likely be influenced by the state in their daily operation and are more likely to take various restructuring measures. We also find city governments with stronger fiscal disciplines and with less political burdens of disposing laid-off works tend to use the MBO method to privatize. Our empirical design deals with the selection issues by applying a difference-in-difference approach and an IV approach.