Privatization with Negotiation: Evidence from the Split Share Structure Reform in China

摘要

We study share issue privatization in China that took the form of the split share structure reform. Prior to the reform, domestic A-shares are divided into tradable and non-tradable shares with identical cash flow and voting rights. Under the reform, non-tradable share holders negotiate a compensation plan with tradable share holders in order to make their shares tradable. We develop a general equilibrium model to help understand the determinants of compensation and the distribution of gains in the process of privatization. Our model predicts: a) there are underpricing and compensation made by the non-tradable share holders to the tradable share holders if and only if the bargaining power of the former is weaker than the bargaining power of the latter; and b) the size of the compensation is decreasing in the bargaining power of the non-tradable share holders, the fraction of tradable shares, and firm performance, and increasing in firm idiosyncratic risk. Our empirical results using data from the reform are broadly consistent with our model's predictions.