Research For Short-term And Long-term Performance Of The Privatization Of Corporate Control

The market of corporate control is an effective external corporate governancemechanism, in case of the separation of the ownership and control right, the market ofcorporate control is a good way to relieve principal-agent problems. When the company hasa bad operating performance, controlling shareholders can make the corporate controltransferred through underselling their share. The new controller will always make animprovement in the efficiency of the company by changing strategy and adjusting staffstructure and so on. With the improvement of China’s market of corporate control, thetransfer of corporate control became an important resources allocation method. Therefore, ithas practical significance to make an analysis on the long-term and short-term marketreturn and long-term financial performance of the transfer of corporate control.Because of our special economic structure, state-owned stock share has a largeproportion of listed companies. State-owned listed companies are always inefficient, whichis caused by the faultiness in governance structure and the excessive concentration of stockshares. At the same time, redundant personnel and government intervention are alsoregarded as the problems to be solved. Privatization relays a signal that private capital willmake a difference for the improvement of the state-owned listed companies that have a badmanagement, which was well understood by existing literature. However, the market ofcorporate control in China is still undeveloped. With the special background of transitioneconomy, the effect of government intervention still can’t be ignored. Whether privatizationcan improve the operating performance of state-owned listed companies needs to beinspected one more time.Based on our summary of existing outcomes, we choose the listed companies that havetheir control right transferred on Shanghai and Shenzhen Stock Exchange from2001to2010as samples; analyze the influence of transfer on long-term and short-term marketreaction and long-term financial performance. We find that:1. the target companies canobtain a significant abnormal return after the announcement of transfer of control, and theprivatized ones obtain more cumulative abnormal return compared with non-privatizedones;2. the buy and hold abnormal return is significant but not relevant to privatization;3.no evidence prove that the privatization can bring an improvement of financial performance (EPS and ROE) for target companies after privatization. One of the innovation points in thispaper is out study on BHAR the impact of privatization on BHAR. Meanwhile, we usedifference-in-differences model to analyze financial performance of target companies.