Private Benefits in Privatization: Evidence from IPOs of State Owned Firms in China

摘要

It is a common notion that there exist a significant conflict of interest between state and the bureaucrats who control state owned firms because the bureaucrats have essentially all the control rights but negligible share-holdings in those firms. Yet, there is no direct evidence of whether and how bureaucrats actively pursue private benefits at the cost of the state owned firms. Using data from IPOs of state owned firms in China, we find evidence supporting the notion that the bureaucrats are trying to get promotion by underpricing IPOs and allocating IPO shares to parties important to their careers. We find i) executives’ chance of promotion is positively correlated with the level of underpricing, and ii) those executives who can benefit more from underpricing actually underprice more.