This thesis applies the complete and incomplete contract approach to study the corporate governance in emerging markets, and we especially focus on the change of corporate governance during the process of privatization in China.
First, this thesis provides a unique contractual analysis of privatization from a state-owned company to a privately-owned company. Using a contractual approach, we analyze the advantages and disadvantages of private ownership versus state ownership under various circumstances. Our analyses focus on three aspects: external risk, internal governance, and relative importance of the owner versus managers. We provide both theoretical and empirical analyses, and our empirical analysis supports our theoretical findings.
Second, an incomplete contract model on staged or step-by-step privatization is presented in Chapter 2. We show that staged privatization can be efficient, in the sense that it can successfully transform a state-owned enterprise into an efficient market-based firm by the time when the reform is complete. It may explain the popularity of staged privatization around the world.
Third, we conduct a pure empirical analysis of economically distressed firms in China, the biggest emerging market in the world. We identify survival responses taken by distressed firms and the determinants of these observed activities. We show that three of the observed survival responses are indeed helpful for a distressed firm to recover: reliance on fixed assets, reliance on intangible assets, and reduction of costs. We also show a critical role of institutional development in an emerging market, where the institutional level is measured by the development of product markets, financial markets and legal environment.
In chapter 4, we present a study on the most recent staged privatization in China in which multi-stage lockups and step-by-step unlocking of shares are used. With such a study, we can analyze how various factors, such as the lockup effect, demand elasticity, performance growth and business fluctuations, affect a staged privatization process, especially the equilibrium speed of privatization both theoretically and empirically.