Ruling with Ideology : Politician Beliefs and the Decision to Privatization

I show that political ideology was critical in shaping China's privatization wave around 2000. Based on belief formation mechanisms, I construct a novel ideology measure for Chinese provincial party secretaries and governors. I find that a governor with above-median communism belief privatized 2.7% fewer state-owned enterprises each year than his below-median-belief colleague. Endogenous appointments and other alternative explanations are unlikely to drive the result. Moreover, firms privatized by more communist governors achieve lower post-sale efficiency gains, possibly because these governors select less promising firms to privatize. However, the party secretary's ideology does not have the same effects. My paper provides novel evidence that ideology can motivate financial decisions in authoritarian regimes. It also identifies politician belief as a fundamental impetus for privatization and demonstrates ideology's substantial impact on corporate ownership structure