A Study On The Effects Of Chinese State-Owned Enterprises And Privatization

Since the establishment of China's capital market in the early 1990s, it has become one of the important ways of optimizing the allocation of resources. The initial public offering of shares improves the efficiency of the state-owned enterprises, however, the performance of the listed state-owned enterprises did not achieve the expected results. A very likely reason is that listed companies are still controlled by the state institutions. Government think that fundamental reform is not enough, so they take the reduction of the state-owned shares and the stock right putting divided and make private enterprises have the opportunity to become the controlling shareholder of a listed company.Abroad theories show that the private controlling shareholder will inject fresh blood and the performance can be significantly improved after privatization of the former state-owned enterprises. In the process of economic transition, laws and regulations are not perfect and control market is underdeveloped. So privatization dose not improve the company's performance.In view of the lack of previous research, this paper presentes the following improvements: (1) further define the definition of privatization of state-owned enterprises; (2) expand the existing literature data, company privated in the 2001 to 2004 as a sample; (3) combination of event study method and accounting research method researches privatization market response, long-term performance and the affecting factors of market responseThis paper presents the following five hypothesis: (1) market will response privatization; (2) after privatization, the original controlling shareholder continuing to hold the share will give worse market response than the original controlling shareholder not continuing to hold the share; (3) after privatization, more state-owned shares from the second to the fifth shareholders will have worse market response; (4) the company whose managers oppose privatization is expected to have better market response than the company whose managers support privatization; (5) after privatization, the performance of companies declines.By using event study method and accounting research method, the paper proves the assumption and has received the following empirical results.First, by using event study method, the paper proves that it is not optimistic about the prospects of privatization of state-owned enterprises. After the notice of privatization, the stock price falls, in particular after 30 days drops sharp. Because the successful privatization needs the agreement of the financial sector , the market dose not immediately respond to privatization.Second, the paper uses regression analysis and the single-factor analysis to analyse the impact of short-term market reaction factors. The original controlling shareholder continuing to hold the share or more state-owned shares from the second to the fifth shareholders has worse market response. Private controlling shareholder tends to damage a country's property. State-owned shares dose not play a role of the power balance with shareholder structure. The company whose managers oppose privatization gets better market response than the company whose managers support privatization. All show that privatization dose not improve the efficiency of state-owned enterprises, so improving corporate governance is a good way to increase the performance of the company.Third, the paper use accounting research method to analyse performance changes after privatization. The empirical results show that the return on asset declines, cost of sales rises, debt ratio grows, and main operating income declines. So the paper proves that profitability, operating capacity, solvency and ability to grow all become worse after privatization .So, the paper thinks that only privatization can not imprive the performance of listed companies. From a long-term point of view, improving corporate governance and modifing the relative laws and regulations are better to imprive the performance.