Managerial Coase theorem: evidence from China

Purpose This paper aims to take a step in this direction and use the high dimensional fixed effects and quantile regression discontinuity design to test the managerial Coase theorem, which provides an institutional perspective for us to gauge the impact of private property rights on firm performance and the effect of management costs on intermediate inputs. Design/methodology/approach This study first uses high dimensional regression discontinuity designs to examine the impact of privatization on firm performance in China between 1998 and 2013. Findings Results indicate that privatization effects increase average outputs of the firm by around 10% given lower management costs, and management costs increase intermediate inputs by more than 50% points. Using data from annual surveys to test managerial Coase theorem, the authors show that management costs negatively affect the marginal effect of privatization on the average outputs of the firm. The positive impact on the investment in intermediate goods and services is larger in magnitude under higher management costs. Originality/value The authors develop the managerial Coase theorem. Today, given lower management costs, private property rights provide an incentive structure for a firm to maximize the value of the assets and expand the boundaries.