Zuobao Wei

State equity ownership and firm market performance: evidence from China's newly privatized firms

This research examines the relation between state equity ownership and firm market performance for China’s newly privatized firms in 1994 (164 firms), 1995 (175 firms), and 1996 (252 firms). The overall results show that state ownership has a negative effect on firm value. Tobin’s Q is convex with respect to state ownership, such that newly privatized firms gained capital and higher market values, with their increased size paying off in terms of stock returns. The effect of international ownership is unpredictable and domestic institutional ownership does not appear to improve performance, possibly because the latter lack proper incentives to positively influence the firm’s management. The results further show that firm performance is not an important determinant of state ownership, but rather, firm size and its strategic industry status are the main determinants of the state’s equity ownership in China’s newly privatized firms. D 2003 Elsevier Science Inc. All rights reserved.

The Dark Side of Transparency in Developing Countries: The Link between Financial Reporting Practices and Corruption

This paper examines the impact of financial reporting practices in over 70,000 firms across 121 countries. While prior studies examining financial reporting practices mainly focus on the benefits of disclosure in developed markets such as the United States, we focus on the costs associated with increased financial transparency in emerging markets where governance mechanisms are relatively weak. We document a strong positive relation between the production of audited financial statements (AFS) and corruption obstacles faced by the firm. We argue that in corrupt business environment, rent-seeking bureaucrats use the available information to optimize their bribe extractions. We further show that country-level institutional quality has an important impact on the cost of transparency: the level of corruption obstacles associated with AFS is significantly higher in countries with weak corruption control mechanism. Our study sheds light on the dark side of transparency: exposure to corrupt bureaucrats where institutions are weak.

BANK FINANCING AND FIRM GROWTH: EVIDENCE FROM TRANSITION ECONOMIES: Bank Financing and Firm Growth

This paper studies how firm financing patterns affect growth and the associated role of country-level economic and institutional development. Using a unique firm-level survey database covering over 20,000 firms in 30 Eastern European and Central Asian countries, I find that firms using formal bank finance grow faster in terms of sales growth, employment growth, and labor productivity growth than those financed from internal and alternative informal sources. I use a battery of robustness checks and the main results hold for a subsample of private firms, for an alternative measure of bank financing, and after controlling for potential endogeneity of the bank financing decision. The positive association between firms’ use of bank financing and growth also holds across different levels of economic, institutional, and financial development of a country. Even in some fast-growing developing economies where formal financial channels serves relatively smaller portion of the private sector, bank financing from formal financial system is related with faster firm growth. My findings question the observed role of informal financing in the literature for some fast-growing developing countries.