Corruption in Chinese Privatizations

Abstract

We document evidence of corruption in Chinese state asset sales. These sales involved stakes in partially privatized firms, providing a benchmark—the price of publicly traded shares—to measure underpricing. Underpricing is correlated with deal attributes associated with misgovernance and corruption. Sales by “disguised” owners that misrepresent their state ownership to elude regulatory scrutiny are discounted 5–7 percentage points more than sales by other owners; related party transactions are similarly discounted. Analysis of subsequent operating performance provides suggestive evidence that aggregate ownership transfers improve profitability, though not in cases where the transfers themselves were corrupted. (JEL D73, G30, L33).