INSIDER PRIVATIZATION WITH A TAIL: THE BUYOUT PRICE AND PERFORMANCE OF PRIVATIZED FIRMS IN RURAL CHINA

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.


Issue Date:
2001
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/11968
Total Pages:
49
Series Statement:
Working Paper Number 01-017




 Record created 2017-04-01, last modified 2017-08-23

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