Wednesday, November 12, 2014 | 2:00pm – 3:00pm | Room 335, HSBC Business School Building

Abstract

Privatization, in which the ownership of former state-owned enterprises is sold to private parties, has profoundly shaped the economic landscape of transition economies. This study addresses how this important change in ownership structure affects the business scope of privatized firms. I complement the traditional organizational economic paradigm with an institutional perspective to illustrate how control transfer and heterogeneity in new owners shape the business portfolio of privatized firms. Drawing on a sample of privatized firms in mainland China from 2001 to 2011, I find that privatization induces restructuring in the business scope of privatized firms. In particular, consistent with the organizational economic theories, I find that privatized firms focus the scope of business through divesting unrelated businesses. As well, I find that privatized firms, in which the control changed from the government to the private sector, divest legacy unrelated businesses and diversify into new unrelated businesses simultaneously. The study further illustrates that distinct owner groups differ in their restructuring strategies as well as their strategic response to the transfer of control. The study contributes to the privatization literature through unpacking the strategic process after privatization and highlighting the importance of control transfer and the new owners’ identities in shaping this process.