What Will Privatization Bring : The Non-Tradable Share Issue Reform in China

This paper describes the background, the process, and the market reaction of Chinese crucial privatization program, namely the Non-tradable Share Issue Reform. We document the following findings: (1) The privatization program causes economically moderate and statistically significant cumulative abnormal return (-60, 60) of 4.34% (median: 4.86%). (2) The privatization program brings tradable shareholders enormous buy-and-hold returns. The short run BHR amounts to 54.29% (median: 51.26%), and the medium run BHR reaches to as high as 78.22% (median: 76.01%), both significantly different from zero. The NBHR (BHR net of buy and hold the market index) is also economically large and statistically significant. (3) The privatization program activates the market, increases both the volatility and the liquidity. (4) Although the comovement of individual stocks with the market does not change significantly, the price efficiency increases both in the short run and the medium run