The Crony State: Politics of the Implementation of China's New Share Reform.

China's new share reform starting in 2005 was to merge the segmented stock market share structure. This paper analyzes how compensation ratios at the core of the reform implementation are decided. To what extent does the implementation of the share reform reflect the role of the Chinese state in its economic transition? Employing a state-interest group framework to explain compensation determination, I theorize the mechanisms and empirically examine the effects of the state intervention in a firm's reform implementation and the relative bargaining powers of interest groups of shareholders on compensation levels. Using the OLS and 2SLS strategies over an originally compiled dataset of the reform implementation of listed firms, I find that these two types of political forces are the most important in deciding compensation levels, and the pattern the political forces are combined supports the crony state model in which the state and the targeted interest groups mutually empower each other in China's transition. [ABSTRACT FROM AUTHOR]