Firm Resources, Governmental Power, and Privatization

Abstract

We examine how firms’ resources and the power of their governmental owners influence the likelihood of privatization of state-owned enterprises. Using data on 206 Chinese pharmaceutical firms over the period of 2000 to 2007, we found that firm financial performance (a proxy for firm resources) increased the likelihood of privatization. In addition to firm resources, we investigated how a heterogeneous body of decision makers within the governmental hierarchy influences the likelihood of firms’ privatization. We found that provincial governmental owners’ willingness to privatize firms increased when they had higher fiscal power. The results of this study also indicated a negative moderating influence of provincial fiscal power: Higher fiscal power of provincial governmental owners weakened the relationship between firm financial performance and the likelihood of privatization.