In June 2001, the Chinese Government announced proposals to reduce its retained ownership in listed Chinese state-owned enterprises. In the 3 months following the announcement, the market fell by 40 % and as a consequence, in 2002 the programme was cancelled. The Government learnt lessons and in April 2005 it launched a revised plan to sell its shares, known as the Full Circulation Reform. The new reform was carefully guided by official document releases, trialled with a pilot programme, and then extended to the majority of firms in groups over a 2-year period. The process was known as a gradual, offer-to-get approach. At the firm-level, each reforming company gradually implemented the sale of its Government-held shares through one negotiation stage and one voting stage. Part of the negotiation stage centred on the compensation that would be paid by the Government to the public shareholders to ensure that the reforms went through. This paper investigates market reactions around the critical event dates in the reform process and the underlying dynamics. The results show that this reform had positive impact on prices, indicating the gradual and offer-to-get approach was very successful and Government objectives for the sale were met.
Review of Quantitative Finance and Accounting – Springer Journals
Published: Jan 31, 2014
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