The Impact of Corruption on State Asset Sales — Evidence from China

We document the under-pricing of state asset sales in China. Because these stakes were in partially privatized firms, there is a credible benchmark — the price of publicly traded shares — to measure the extent of under-pricing. On average, we find that blocks of government shares sell at a discount of more than 70 percent relative to tradable shares. Further, sellers that conceal their state ownership status (likely in order to elude regulatory scrutiny) sell at a further 5 percentage point discount. There are modest post-transfer improvements in profitability, based on both event study evidence and also changes in ROA. However, we also document large shifts in assets and profitability to firm subsidiaries, a pattern we interpret as suggestive evidence of increased post- transfer tunneling.