Uncovering asset stripping during China's privatization

Abstract

AbstractThis paper empirically studies the occurrence and extent of asset stripping via undervaluing public assets during the mass privatization of state‐owned and collectively owned enterprises in China. Using three waves of a national survey of private firms, we provide evidence that state‐owned and collectively owned assets were substantially underpriced, indicating the presence of corruption during privatization. Further analysis shows that the extent of underpricing is more severe in regions with less market competition or weaker property rights protection, and more pronounced for intangible assets such as intellectual property rights and land use rights. When comparing firm efficiency between privatized firms and de novo private firms, we find that the former group continues to enjoy considerable preferential treatments, yet significantly underperforms the latter, possibly due to continued government control and intervention. Finally, we provide evidence that insider privatization is an important source of corruption during the privatization process.