Imprinting and peer effects in acquiring state ownership: Evidence from private firms in China

Abstract China has recently launched a historical mixed ownership reform. We examine both imprinting and peer effects in private takeovers of state ownership through a proprietary dataset of listed firms on the Shanghai and Shenzhen Stock Exchanges. Our findings suggest that first experience affects private firm's takeover decisions, in that negative experience of either poor post-takeover performance or high takeover premium impedes subsequent takeovers. In addition, private firm's political ties alleviate the negative imprinting effect. However, private firms' business ties strengthen the negative imprinting effect. Private firms without antecedent experience tend to follow their peers in taking over state ownership. Antecedent failures can therefore be passed by the peers to potential acquirers. Our findings have policy implications in the context of China's concurrent state-owned enterprise (SOE) reforms.