Why Don’t Share Issue Privatizations Improve Profitability in China?

We document significant post-share issue privatization (SIP) increases in profitability of divested Chinese state-owned companies, once the negative IPO listing effect is accounted for. This contradicts previous studies showing that profitability declines after privatization. We employ a triple difference approach and examine 204 Chinese SIPs from 1999-2009 matched with otherwise comparable state-owned enterprises and privately-owned firms. We document a negative listing effect since the ROS EBIT/Sales of privately-owned firms decline significantly after going public. After adjusting for this negative listing effect, we show that SIPs yield significantly improved profitability, and find this result is highly robust to alternative specifications.