Privatization and risk sharing: Evidence from the split share structure reform in China

Kai LI, Tan WANG, Yan Leung Stephen CHEUNG, Ping JIANG

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Abstract

We study the share privatization process in China to investigate whether and how the removal of market frictions is associated with efficiency gains. Prior to the reform, domestic A-shares were divided into tradable and non-tradable shares. As a result of the reform, holders of non-tradable shares compensated holders of tradable shares in order to make their shares tradable. We show that size is positively associated with both the gain in risk sharing and the price impact of more shares coming on the market as a result of the reform. Our study highlights the role of risk sharing in China's share issue privatization process. Copyright © 2011 The author.
Original languageEnglish
Pages (from-to)2499-2525
JournalReview of Financial Studies
Volume24
Issue number7
DOIs
Publication statusPublished - Jul 2011

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China
Privatization
Risk sharing
Efficiency gains
Price impact
Make-to-order
Market frictions
Shareholders

Citation

Li, K., Wang, T., Cheung, Y.-L., & Jiang, P. (2011). Privatization and risk sharing: Evidence from the split share structure reform in China. The Review of Financial Studies, 24(7), 2499-2525. doi: 10.1093/rfs/hhr025