China’s secondary privatization: new evidence on controlling shareholders tunnelling

Research output: Journal PublicationArticlepeer-review

2 Citations (Scopus)


This article utilizes the 2005 split-share structure reform (SSSR) in China as a natural experiment and conducts difference-in-differences (DID) tests to analyse corporate governance changes among Chinese SOEs compared to POEs. We show that tunnelling significantly reduced in both POEs and SOEs after the SSSR. More importantly, we find a significant and positive ‘privatization effect’ on SOEs’ tunnelling activities during the post-reform period suggesting the reductions of tunnelling were smaller among SOEs than POEs following the SSSR. In contrast, excess returns around the SSSR indicate that investors expected a negative ‘privatization effect’ on SOEs’ tunnelling. These findings suggest that the quality of corporate governance did not improve among SOEs as a result of the secondary privatization as the stock market expected without fundamental changes to firm ownership and control following the SSSR. The benefits of privatization accrue to the government controlling shareholders rather than minority investors.

Original languageEnglish
Pages (from-to)188-201
Number of pages14
JournalApplied Economics
Issue number2
Publication statusPublished - 8 Jan 2017


  • China
  • Privatization
  • corporate governance
  • split-share structure reform
  • tunnelling

ASJC Scopus subject areas

  • Economics and Econometrics


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