Does Share Issue Privatisation Necessarily Boost Firm Performance? New Evidence from China’s NTS Reform

Using China's Non-tradeable Share (NTS) reform as a natural experiment and exploiting its staggered adoption, we assess the impact of share privatisation on corporate performance and earnings management. 2005 NTS reform required all listed firms with NTS to adopt it by 2006 though the process of NTS conversion went on till 2009. Earnings management went down; but market or accounting performance of treated firms (with NTS) did not improve because its valuation multiple failed to improve. We document that the latter is attributed to persistent government control through legal persons shares, tunnelling as well as related party transactions