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Finance Seminar

Author:

• Hong Ru
  Nanyang  Technological  University

This paper investigates how local politicians affect privatization implementations and the outcomes in China. I find that older local politicians with higher education and working experience in state-owned enterprises (SOEs) tend to do more privatizations. Overall, privatizations increase firm efficiency and productivity which help local politicians’ career advancements under the GDP tournaments in China. This efficiency gain is less pronounced when local politicians have more political capitals that increase their promotion chances. These powerful local politicians deviate from the GDP maximization and have weaker incentives to maximize the efficiency gain of privatizations. I employ the regression discontinuity design by using the compulsory retirement age of members of the Central Committee of the Communist Party of China as exogenous shocks to their connected local politicians’ political power.