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... associated with politician control. In organizational economics, the term “bureaucracy costs” is often used to refer to the costs of using hierarchies rather than markets in organizing transactions (=-=Williamson, 1985-=-). 8managerial initiatives, and politically-motivated or misinformed business decisions on the other. Politicians have incentives to control or/and subsidize SOEs to achieve economically inefficient ...

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...anagerial moral hazard problem. 10Moreover, it takes time to establish market-oriented economic and legal institutions that are conducive to effective corporate governance in a transitional economy (=-=Shleifer and Vishny, 1997-=-). Therefore, corporate governance in the reformed enterprises may deviate from what is stipulated in the law and may be quite ineffective in containing agency costs. While theoretically both politica...

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...ers while the costs are borne completely by the monitoring party, large shareholders internalize to a greater extent the costs and benefits of monitoring, and therefore exert more monitoring efforts (=-=Shleifer and Vishny, 1986-=-). Indeed, Anderson, Lee and Murrel (2000) find that dispersed private ownership is found to lead to worse performance than state ownership in Mongolia. In our data, foreign and legal person sharehold...

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...of SOEs, the most important reform measure in the past decade. Our study also adds empirical material to the literature on corporatization. While there is a large body of literature on privatization (=-=Megginson and Netter, 2001-=-), there has been only limited empirical research to systematically evaluate corporatization, in China or elsewhere. Lin and Zhu (2001) use the same survey data set mainly to examine organizational fo...

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...firms by politicians who have political goals that differ from economic efficiency) and agency costs (i.e. the costs resulting from managerial pursuit of private benefits at the expense of the firm) (=-=Shleifer and Vishny, 1994-=-; Qian, 1996). Whether these costs can be contained is the key to the success of SOE reform. The large-scale ownership and organizational reform of Chinese SOEs during the second half of the 1990s rep...

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...oncern in China about the independence of the board when the CEO is also the chairman. We tried (iv) because the literature seems to suggest that board size is negatively correlated with performance (=-=Hermalin and Weisbach, 2001-=-). The argument is that large board size suffers from the free-rider problem in the board’s monitoring of the CEO and exercising of control over key business decisions. Our result offers neither stron...

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...e voting mechanism and the board structure, matters to performance. 9 One-share-one-vote is generally believed and theoretically shown to be a more efficient voting mechanism in corporate governance (=-=Grossman and Hart, 1988-=-; Harris and Raviv, 1988). One-share-one-vote helps to reduce the likelihood that the manager would respond to shareholders that have greater control than their proportion of the total shares suggests...

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...rmance to be worse in firms whose CEOs are appointed by the government. Moreover, replacing the incumbent management during the reform is found in the literature to result in better firm performance (=-=Denis and Denis, 1995-=-) and more restructuring (Barberis et al., 1996) in transition economies. Ownership structure is widely perceived to affect performance. 8 More ownership stakes by non-state shareholders such as priva...

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...e board structure, matters to performance. 9 One-share-one-vote is generally believed and theoretically shown to be a more efficient voting mechanism in corporate governance (Grossman and Hart, 1988; =-=Harris and Raviv, 1988-=-). One-share-one-vote helps to reduce the likelihood that the manager would respond to shareholders that have greater control than their proportion of the total shares suggests. A shareholding-based b...

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...cts of enterprise reform in China have focused on the effect of decentralization of decisionmaking authority and incentive contracting on the performance (technical efficiency in particular) of SOEs (=-=Groves et al., 1994-=-; Jefferson, Rawski and Zheng, 1996; Li 1997; Xu, 2000; Shirley and Xu, 2001), or compare differences in performance between state and non-state firms (Woo et al., 1994; Xu, 1995; Jefferson, Rawski an...

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...s output at a profit. These considerations led to many problems among Chinese SOEs under the old system. Chinese reform that delegated many of the decision-making rights to SOE managers in the 1980s (=-=Naughton, 1995-=-) can be viewed as allocating some of the formal authority to the managers. As implied by Aghion and Tirole’s theory, managerial autonomy then motivated SOE managers to become more informative about b...

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...inted by the government. Moreover, replacing the incumbent management during the reform is found in the literature to result in better firm performance (Denis and Denis, 1995) and more restructuring (=-=Barberis et al., 1996-=-) in transition economies. Ownership structure is widely perceived to affect performance. 8 More ownership stakes by non-state shareholders such as private individuals or foreign investors may imply r...

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...fect of decentralization of decisionmaking authority and incentive contracting on the performance (technical efficiency in particular) of SOEs (Groves et al., 1994; Jefferson, Rawski and Zheng, 1996; =-=Li 1997-=-; Xu, 2000; Shirley and Xu, 2001), or compare differences in performance between state and non-state firms (Woo et al., 1994; Xu, 1995; Jefferson, Rawski and Zheng, 1996; Zhang, Zhang and Zhao, 2001)....

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...ve political goals that differ from economic efficiency) and agency costs (i.e. the costs resulting from managerial pursuit of private benefits at the expense of the firm) (Shleifer and Vishny, 1994; =-=Qian, 1996-=-). Whether these costs can be contained is the key to the success of SOE reform. The large-scale ownership and organizational reform of Chinese SOEs during the second half of the 1990s represents the ...

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...directly control permanent migration, thus permanent migrationsdepends largely on government regulation. Individual decisions are not the appropriate focus ofsresearch in this case. Push-Pull theory (=-=Lee, 1966-=-) is not proper to be used to explain this type ofsmigration. In contrast, temporary migration is properly studied as individual optimizing decisionssin the face of market constraints. Government poli...

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...ency in particular) of SOEs (Groves et al., 1994; Jefferson, Rawski and Zheng, 1996; Li 1997; Xu, 2000; Shirley and Xu, 2001), or compare differences in performance between state and non-state firms (=-=Woo et al., 1994-=-; Xu, 1995; Jefferson, Rawski and Zheng, 1996; Zhang, Zhang and Zhao, 2001). This paper is, to our knowledge, the first systematic empirical 4 The results of privatization in these countries are mixed...

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...ed a vast movement of agricultural labor from ruralsareas to cities.sThe civil registration system had been the crucial means for China government to controlspopulation migration in the past decades (=-=Davin, 1999-=-). Without urban hukou, rural populationscannot stay in urban area for a long time. In 1984, the government started to allow non-farmslabors with agricultural hukou to move and live in cities permanen...

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...eady shown that there exists significant differencessbetween permanent migrants and temporary migrants (Aubert, 1995; Chang, 1996; Fan, 1999;sGoldstein, 1990; Goldstein and Goldstein, 1993; Ma, 1999; =-=Wang and Zuo, 1999-=-; Wu and Zhou,s1997; Yang, 1993).sFirstly, authorities directly control permanent migration, thus permanent migrationsdepends largely on government regulation. Individual decisions are not the appropr...

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...eory, when politicians have direct control over the operation of SOEs, there is likely to be more labor redundancy. In fact, there is strong evidence that excess employment in Chinese SOEs was large (=-=Dong and Putterman, 2001-=-). Managers, on the other hand, tend to assign less weight to the political benefits from employment and greater weight to profits than politicians do. When given the control rights over labor decisio...

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...structure, especially through inclusion of non-state parties as shareholders, “to make SOEs operate as if they were private firms facing a competitive market or, if monopolies, efficient regulation” (=-=Shirley 1999-=-, p. 115). 31998). 2 Privatization is mostly used to sell some small SOEs to private entrepreneurs (Cao, Qian and Weingast, 1999). The main strategy, however, is corporatization. This is intended to ...

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...icult for non-qualifiedsagricultural labor. Many researchers have already shown that there exists significant differencessbetween permanent migrants and temporary migrants (Aubert, 1995; Chang, 1996; =-=Fan, 1999-=-;sGoldstein, 1990; Goldstein and Goldstein, 1993; Ma, 1999; Wang and Zuo, 1999; Wu and Zhou,s1997; Yang, 1993).sFirstly, authorities directly control permanent migration, thus permanent migrationsdepe...

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...pment of the open-up policy and export-oriented economy, the inflow of a largesamount of foreign investment causes some type of “foreign investment inducedsexo-urbanization” in the coastal provinces (=-=Sit and Yang, 1997-=-). Most of the foreign investmentsconcentrates in small and medium enterprises (SMEs) and in the labor-intensive sectors, whichsleads to the expansion of the job market and, as a result, attracts immi...

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...tended to transform most SOEs into three types of shareholding companies: limited liability companies (LLCs), limited liability stock companies (LLSCs), and employee-owned stock cooperatives (EOSCs) (=-=Lin and Zhu, 2001-=-). 3 A reformed firm’s shares are classified into five categories: state-owned, legal-person-owned (i.e., shares owned by any institution that has a legal person status such as an investment company),...

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...n, which is in general difficult for non-qualifiedsagricultural labor. Many researchers have already shown that there exists significant differencessbetween permanent migrants and temporary migrants (=-=Aubert, 1995-=-; Chang, 1996; Fan, 1999;sGoldstein, 1990; Goldstein and Goldstein, 1993; Ma, 1999; Wang and Zuo, 1999; Wu and Zhou,s1997; Yang, 1993).sFirstly, authorities directly control permanent migration, thus ...

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... were simply left on their own with very little supervision from the state. Both the managers andsthe governing bodies of state properties engaged extensively in corruption and rent-seek ng behaviors(=-=Dobrinsky 1996-=-; Frydman et al 1993).s6 Xu, 2000; Shirley and Xu, 2001), or compare differences in performance between statesand non-state firms (Woo et al., 1994; Xu, 1995; Jefferson, Rawski and Zheng, 1996;sZhang,...

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... general difficult for non-qualifiedsagricultural labor. Many researchers have already shown that there exists significant differencessbetween permanent migrants and temporary migrants (Aubert, 1995; =-=Chang, 1996-=-; Fan, 1999;sGoldstein, 1990; Goldstein and Goldstein, 1993; Ma, 1999; Wang and Zuo, 1999; Wu and Zhou,s1997; Yang, 1993).sFirstly, authorities directly control permanent migration, thus permanent mig...

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...) of SOEs (Groves et al., 1994; Jefferson, Rawski and Zheng, 1996; Li 1997; Xu, 2000; Shirley and Xu, 2001), or compare differences in performance between state and non-state firms (Woo et al., 1994; =-=Xu, 1995-=-; Jefferson, Rawski and Zheng, 1996; Zhang, Zhang and Zhao, 2001). This paper is, to our knowledge, the first systematic empirical 4 The results of privatization in these countries are mixed. See Megg...

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....s3 See de Beer and Rocca (1997); Zhu and Jiang (1993).s4 Because of the wide gap in earning opportunities between rural and urban areas, such low-paid jobs were still attractive to ruralsmigrants.s3 =-=Ma, 1999-=-; Yang, 1994). We divide the migrants into two sub-groups: permanent and temporary,saccording to whether their usual residency place and the hukou place are different (temporary) orsthe same (permanen...

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...ion of the complex property of hukou system and its relationship withsother social systems, its removal cannot be come into true until a more radical reform, which issnot able to occur in short time (=-=Chen, 2006-=-).s5.3 Reform of employment systemsIn current urban China, non-organized migrant workers are eager to have a place to huntsjob. At the same time, self-employed individuals, private and collective ente...

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...on-qualifiedsagricultural labor. Many researchers have already shown that there exists significant differencessbetween permanent migrants and temporary migrants (Aubert, 1995; Chang, 1996; Fan, 1999;s=-=Goldstein, 1990-=-; Goldstein and Goldstein, 1993; Ma, 1999; Wang and Zuo, 1999; Wu and Zhou,s1997; Yang, 1993).sFirstly, authorities directly control permanent migration, thus permanent migrationsdepends largely on go...

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...t differencessbetween permanent migrants and temporary migrants (Aubert, 1995; Chang, 1996; Fan, 1999;sGoldstein, 1990; Goldstein and Goldstein, 1993; Ma, 1999; Wang and Zuo, 1999; Wu and Zhou,s1997; =-=Yang, 1993-=-).sFirstly, authorities directly control permanent migration, thus permanent migrationsdepends largely on government regulation. Individual decisions are not the appropriate focus ofsresearch in this ...

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...ctive2 Small-scale ownership reform of SOEs, which is often referred to as shareholding reform in China, began in the mid-1980s; systematic experimentation with the shareholding system began in 1992 (=-=SCESR 1997-=-). In December 1993, the Company Law was passed, and SOE reform entered a stage in which privatization or corporatization of SOEs could, in principle, be guided by law. Large-scale ownership reform st...

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...ation of decisionmaking authority and incentive contracting on the performance (technical efficiency in particular) of SOEs (Groves et al., 1994; Jefferson, Rawski and Zheng, 1996; Li 1997; Xu, 2000; =-=Shirley and Xu, 2001-=-), or compare differences in performance between state and non-state firms (Woo et al., 1994; Xu, 1995; Jefferson, Rawski and Zheng, 1996; Zhang, Zhang and Zhao, 2001). This paper is, to our knowledge...

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... of hukou restrictions resulted in largesquantity of population whose stay place is different from where their hukou are registered. Theysare so called “temporary residents” or “floating population” (=-=Bari, 1997-=-; Goldstein et al., 1991;s1 See Davin (1999); Zhu (2002).s2 See McMillan et al. (1989).s3 See de Beer and Rocca (1997); Zhu and Jiang (1993).s4 Because of the wide gap in earning opportunities between...

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....8 and 5.5 per cent. In reference to employer-provided supplementary insurance, mutualsinsurance, and private insurance, the participation rate gets much less, 2.9, 3.1 and 5.6 per centsrespectively (=-=Chen, 2005-=-).sThere is no universal social security system all over the country, instead of local measures.s“Comprehensive social insurance” carried out in Shanghai and Chengdu gives us a good examples(Hu, 2006)...

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...cultural labor. Many researchers have already shown that there exists significant differencessbetween permanent migrants and temporary migrants (Aubert, 1995; Chang, 1996; Fan, 1999;sGoldstein, 1990; =-=Goldstein and Goldstein, 1993-=-; Ma, 1999; Wang and Zuo, 1999; Wu and Zhou,s1997; Yang, 1993).sFirstly, authorities directly control permanent migration, thus permanent migrationsdepends largely on government regulation. Individual...

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...s, it is difficult to organize because farmers live in dispersed geographic scope.sTherefore this non-systematic and low-level training cannot be recognized by thesemployer and hence no good effects (=-=Jiang, 2005-=-).s3.3 Family birth-planningsRapid increase of floating population exerts big pressure on birth-control. China’ssbirth-control was previously carried out on the superincumbent base. Inflow of migrants...

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...y urban public school step by step.sPublic school can afford the enrollment of migrant children because there is surplus of facilitysand teaching staff with the reducing enrollment of urban children (=-=Lai, 2005-=-).s33s5.5 Reform of Social Security SystemsThere is no universal social security policy targeting floating population in current China.sDue to the complication of social security and regional differen...

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...o help floating children enjoy primary education. In additionsto “Law on Compulsory Education”, there are various local regulations.sThere exist five models of floating children’s education in China (=-=Li et al., 2003-=-): (i)sPublic school or qualified private school in city, which attracted floating population with highersearnings. (ii) Public school special for floating children, which has better facility and qual...

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...eform of hukou system in small townssSince 1980s, many local governments have been relaxing various restrictions relating tosfamers’ move to small towns. The State Council announces a notice in 1984 (=-=Mallee, 1994-=-),swhich permits farmers doing non-farm activity to stay in city on the condition that theysthemselves can cope with feeding by themselves. They are so called “self-sufficient hukou”.sHowever, this ki...

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...ining contents should be decided by the demand of labor market. Otherwise, relying onscooperation between training institutions and enterprises, the institutions deliver customizedstraining programs (=-=Ren, 2005-=-).sSecondly, government, through aid in enrollment and job search, should encourage the sets32 up of private non-profit training agency. Local authorities of where migrants move from can helpsin enrol...

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...cal government should take full financial responsibility of migrant children’sscompulsory education.sSecondly, the local authorities should establish a system to make all migrant childrensregistered (=-=Song, 2005-=-). In doing so, the local governmental education agency is able to know thesactual situation.sThirdly, migrant children should be enrolled in local public school. The tuition can bespaid by on flexibl...

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...h Beijing hukou. In essence, thesrestrictions in hukou are still in force, indicating that migrant workers have to bear dualsrestrictions.s Discrimination in Social SecuritysAccording to some survey =-=Song et al., 2006-=-), in urban China, local urban employeessenjoy the highest benefits from social security, the next is local rural labors, followed by migrantsrural labors. Urban employees are generally covered by soc...

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...loyment center), market competition (response to advertisement or job notice), socialsnetwork (introduction of relatives, friends, and other acquaintances) and self employment.sDepending on a survey (=-=Song and Appleton, 2006-=-), floating population find out job mainlysthrough market competition (35%), self-employment (35%) and social network (26%). And lesssthan 3 per cent found jobs through governmental agency. Accordingl...

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...ols appointed by the government to adopt floating children.s(iv) migrant-children schools, which have not qualified facility and teaching staff and many ofsthem are not admitted by local governments (=-=Wang, 2005-=-). (v) School in their home town. Quitesmany migrant workers are forced to send their children back to home town to study.s23 Among the above models, the most popularly used is the migrant-children sc...

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... Beer and Rocca (1997); Zhu and Jiang (1993).s4 Because of the wide gap in earning opportunities between rural and urban areas, such low-paid jobs were still attractive to ruralsmigrants.s3 Ma, 1999; =-=Yang, 1994-=-). We divide the migrants into two sub-groups: permanent and temporary,saccording to whether their usual residency place and the hukou place are different (temporary) orsthe same (permanent). There ar...