Insider privatization with a tail: the screening contract and performance of privatized firms in rural China

摘要

This paper studies insider privatization in rural China and provides an explanation of why some firms have performed well after privatization but others have not. We show theoretically that the underperformance of insider-privatized firms could be dueto the manager-cum-owner's lack of incentives after privatization. A screening theory predicts that the buyout price is correlated with the postprivatization incentives, and a firm's postprivatization performance increases with both the buyout price andpostprivatization incentives. Drawing on data we collected in China, we find evidence supporting the theory. We also find that the buyout price decreases with the degree of information asymmetry.