Politicians and Privatization Decisions in China

This paper examines the impact of rent-seeking politicians on privatization decisions during the NonTradable Share (NTS) reform in China, which aims at converting non-tradable shares mainly held by state agencies or by State Owned Enterprises into tradable shares. Our results show that privatizations were delayed in firms with politically connected CEOs, and delayed in firms where the local government has higher incentives to seek rent from the business sector. We draw attention to policymakers that gains of privatization may not be achieved if firms continue to be sensitive to political preference. Even though the NTS reform opened up the gate to further privatizing listed State-owned Enterprises in China, reducing political interference is critical to establishing efficient corporate governance in the privatized firms. A further defining characteristic of the timing of the conversions is that firms with a higher proportion of management owned shares tend to be selected in the early stage of the reform and tend to complete the reform earlier than others. This indicates that managers are keen to capitalise on the opportunities the NTS reform created.