Value Creation after State Share Transfers: New Evidence from China

We investigate state share transfers of Chinese listed companies on how financial conditions and ownership structure affect such restructuring decision and shareholders’ wealth. Chinese stock market reacts positively to all state share transfers around announcements. The short term positive market reaction is persistent in the long run. We observe significantly positive three-year buy-and-hold abnormal returns for all state share transfers especially those to state legal person shareholders and others. The post stock performance can be explained by the ownership structure of the transferring firms. The firms with higher state ownership, higher institutional ownership, and higher block holder influences report significantly higher three-year buy-and-hold abnormal returns. Our findings support the notion that reduction in state shares as a result of state share transfers creates value both in the short run and in the long run. Institutional investors and large block holders in China exert monitoring on corporate decisions such as state share transfers to increase shareholders’ wealth.