The Effect of Privatization Processes and the Split-Share Structure Reform on the Market Reaction to the Announcements of Transitional Non-Traditional Shares ^☆

Abstract

Purpose

This paper attempts to explore the interrelationships between the split-share structure reform and privatization processes in light of the interplay between the listing announcements of the non-traditional shares of the Chinese firms within the steel industry and market reaction to these listed shares, as well as to analyze the value gained by the firms due to the privatization processes.

Methodology/approach

The paper examines market reaction to the listing announcements of non-traditional shares as traditional shares by employing event-study methodology. To determine the success of privatization process and value creation to the firm, the paper utilizes multivariate analysis.

Findings

The exogenous factors emphasized in a topographical order, explicitly profitability, efficiency, and leverage, are related to the privatization processes and split-share structure reform that impact the market. The study supports that market reacts positively to the listing announcements of non-traditional shares. Being listed improves value to the firm.

Research limitations/implications

The limitation of this study is the lack of data on country, industry, and firm factors; and this study merely relates to one specific industry and one country.

Originality/value

The paper fills a gap in the literature by articulating the impact of privatization and split-share structure reform on both market reaction and firm value. It focuses on the impact of a dynamic process rather than the impact of a static constituent on market reaction and firm value, as the previous studies have been concentrating on. The research shows that there is an accelerated privatization process of state-owned firms in Chinese steel industry and their integration in capital markets.

Citation

Ficici, A., Fan, B., Aybar, C.B. and Wang, L. (2016), "The Effect of Privatization Processes and the Split-Share Structure Reform on the Market Reaction to the Announcements of Transitional Non-Traditional Shares ^☆ ", The Political Economy of Chinese Finance (International Finance Review, Vol. 17), Emerald Group Publishing Limited, Leeds, pp. 211-240. https://doi.org/10.1108/S1569-376720160000017014