Scandinavian Working Papers in Economics

Stockholm School of Economics Asia Working Paper Series,
Stockholm School of Economics, Stockholm China Economic Research Institute

No 2018-51: Strengthened State Capitalism: Nationalized Firms in China

Xunan Feng , Anders C. Johansson () and Ying Wang
Additional contact information
Xunan Feng: Shanghai University of Finance and Economics
Anders C. Johansson: Stockholm China Economic Research Institute, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Ying Wang: Peking University

Abstract: We examine the nationalization of listed firms in China. Using a manually collected data set of 115 cases of ownership transfer from private to state control, we find that nationalization is positively associated with firm performance. When we analyze potential mechanisms through which nationalization may affect firm performance, we find a positive effect on benefits in the form of market power, government subsidies and bank financing. We also identify significant costs in the form of a higher tax burden, higher employment costs, and higher levels of corporate donations following nationalization. Finally, we show that weak local institutions exacerbate the influence nationalization has on firm performance and the benefits and costs tied to a shift to state control. These findings shed light on the effects when the government actively takes a more prominent role in the economy by becoming a controlling shareholder in large companies.

Keywords: Nationalization; Political economy; Firm performance; Local institutions; China

JEL-codes: G32; G34; H11; P26; P31

73 pages, December 19, 2018

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