Privatization Of The SOEs, Transfer Of Control Rights And Private Benefits Of Control

Ever since 1980s, privatization policies have been implemented across various countries all over the world. Policy makers in those countries expect privatization could bring positive effects on firms' performance. Especially in the transition economies, larger privatization programs have been carried out than have been observed in other countries, hence having a more profound effect on their national economies. Whether privatization could help to improve SOEs' performance will determine the healthy development of the transition economies. Consequently, economic literatures devoted to issues on privatization and its efficiency have been constantly increasing.Usually, privatization refers to the transfer of ownership and control of property or businesses from the state to a privately owned entity. From this point of view, we can see that privatization and the transfer of control rights are two aspects of the same issue. We classify privatization into two types, namely non-listed SOEs' privatization and state-owned listed companies' privatization. Consequently, we focus our concern on the listed one, since the transfer of control rights of listed SOEs is the main form of implementing privatization today.Four theoretical thoughts have contributed to the studies on privatization and efficiency, namely principal-agent theory, property right and transaction cost, different objective functions and competitive market environment. Based on these thoughts, most economists conclude that privatization could reduce the agency cost, promote work incentives and improve firm performance. However, these studies ignore one important party involved in the process of privatization_private buyers. What's their true purpose of taking over the public property, to stimulate the superior performance of the firm and gain their public benefits or to just obtain the private benefits of control? How does the private benefit correlate with the firm performance? Has the firm performance been improved through privatization implemented in China? How should we measure and curb the private benefit? By answering these questions, we could make an objective judgment on the efficiency of privatization in China, provide some reasonable suggestions for the relevant policy makers, efficiently limit private benefit of large shareholders, arid increase the firm value, hence enhancing the efficiency of privatization.Using a sample of 113 Chinese listed companies that have had controlling blocks transferred from the government to private owners, we first examine the change in firm performance during a period of 3 years following this transfer. Then based on Dyck& Zingales's model, we estimate and compare the average private benefit held by the government and private buyers, and finally, we examine the relationship between private benefit and firm performance, as well as discussing some approaches to curb the private benefit.Via empirical studies, our findings are as follows:1. After the controlling blocks have been transferred from one state entity to a private entity, there's no statistically significant change in the firm performance. Generally speaking, privatization by the means of controlling right transfer among listed companies is inefficient in China.2. Holding the other factors constant, we conclude that the average private benefit of a private controlling shareholder is significantly higher than that of a state-controlling shareholder. Obtaining the private benefit of control is private buyers'main purchase motive.3. Private benefit of control negatively influences the future corporate performance. Therefore, to control the former could help to improve the latter, hence increasing the efficiency of privitization.4. In additional to the sound legal environment and strong external supervision, this paper describes the effective inner supervision mechanism as an important approach to control the private benefit. Based on reputation incentive mechanism, the paper proposes that an independent-director market should be established, from which SFC selects independent directors and matches them with target listed companies. Via a two-period game model, our paper also proves the proposed independent director system is a Pareto Improvement...