How do Individual Politicians Affect Privatization? Evidence from China

45 Pages Posted: 17 Sep 2020

See all articles by Hong Ru

Hong Ru

Nanyang Business School, Nanyang Technological University

Kunru Zou

Renmin University of China

Multiple version iconThere are 2 versions of this paper

Date Written: September 17, 2020

Abstract

This paper investigates how politicians’ patronage connections affect privatizations in China. The connections to top political leaders (i.e., Central Committee of the Communist Party of China) make local politicians engage more in rent-seeking by selling state-owned enterprises (SOEs) at substantial discounts. These connected local politicians are also more protected in anti-corruption investigations, thus extracting more rents by selling SOE assets at substantial discounts. Consequently, the privatizations conducted by the local politicians with patronage connections achieve significantly lower gains in efficiency and performance. To identify the role of patronage connection in privatization, we use the mandatory retirement age cut-offs of Central Committee members in the regression discontinuity design. We find drops in price discounts of privatization deals and jumps in efficiency for privatized SOEs when local politicians lose connections to Central Committee members around the retirement age cut-offs.

Keywords: China; patronage connection; rent-seeking; privatization; SOE

JEL Classification: D73; G30; L3

Suggested Citation

Ru, Hong and Zou, Kunru, How do Individual Politicians Affect Privatization? Evidence from China (September 17, 2020). BOFIT Discussion Paper No. 21/2020, Available at SSRN: https://ssrn.com/abstract=3694789

Hong Ru (Contact Author)

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore
(+65) 67904661 (Phone)

HOME PAGE: http://https://hongru.mit.edu/

Kunru Zou

Renmin University of China ( email )

Room B906
Xianjin Building
Beijing, Beijing 100872
China

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