Privatizing rural China: The role of learning, screening and contract innovation on the evolution of Township and Village Enterprises.

摘要

This dissertation seeks to understand the privatization of China's Township and Village Enterprises (TVEs). The research is based on a unique data set collected by the author and other collaborators by interviewing enterprise managers, government leaders, and bank officials in two coastal provinces in China.; The first essay presents facts and discusses issues about privatization of TVEs, one of the largest privatization movements in history. Although TVEs were the engine of China's growth in the 1980s, they began to be privatized in the 1990s. Fifty-seven percent government-owned firms in my sample have been completely privatized by 1999. One striking feature is that privatization is heterogeneous across townships. This heterogeneity can be explained by differences in economic and political environments. Moreover, most firms are sold to managers who possess insider information and who have incentives to understate firms' values. I find the institutional flexibility in China allows leaders to use screening contracts to overcome information asymmetries and to facilitate privatization.; The second essay explains when and why governments privatize. The theoretical model focuses on the effect of bank liquidity and bank objectives in determining the value of the firm in the event of privatization. I consider how bank decisions interact with those of government leaders and firm managers and how they ultimately determine the attractiveness of privatization. I show both theoretically and empirically that shifting comparative advantage of firm operations from leaders to managers, decreasing profitability and changes in the rural financial system makes privatization an optimal choice for leaders.; The third essay studies insider privatization in transition economies. I develop a theoretical model explaining how in the face of information asymmetry between the firm's seller and buyer, a down payment and a contractually contingent payment can be used to elicit private information from the buyer about the firm's future profitability. The contract maximizes the revenues of the seller, but reduces the efficiency of firms that continue to share profits after privatization. Applying several econometric models, I find that the choice of contract influences the firm's post-privatization performance and information asymmetries affect the contract design.