Abstract:

There are two approaches to bankrupt State-owned Enterprise (SOE): bankruptcy by policy or by law. This research deals with theoretical questions and practical problems in SOE bankruptcy, especially the relationship among bankruptcy policy, bankruptcy law and strategic bankruptcy.

Theoretically, Hoff-Stiglitz Model and Akerlof-Romer Model are extended. It is indicated that implementation of bankruptcy policy increases the possibility in strategetic bankruptcy: First, the equilibrium of law supply, looting capacity and law demand is explained in macro perspective; Second, rational decision of strategic bankruptcy is testified in micro perspective. This research reveals that dilemma of bankruptcy policy is inevitable: on one hand, SOE with heavy historical burden would face serious problems such as social movement in bankruptcy without subsidy; on the other hand, SOE and local government could get undeserved subsidy even loot the enterprise with bankruptcy policy. The analysis of micro decision making mechanism demonstrates that the controller of SOE concerns with residual income instead of the maximum of enterprise value. While maximizing residual income is implemented in strategetic bankruptcy, looting and minus externality would occur.

Strategic bankruptcy cases in Chengtong Group emperically corroborate former theoretical analyses in two aspects: the change of power and of capital flow in strategic bankruptcy as well as the relationship of government, controller, worker and creditor as stake-holders. Those cases also imply that who gets what and how in the process of strategic bankruptcy and that the effect of bankruptcy policy is different from the purpose.

Extended Hoff-Stiglitz Model showes strategic bankruptcy reduces the demand of bankruptcy law. According to termination of bankruptcy policy in 2008 and the process of bankruptcy law legislation, the further research in need and regulation in preventing SOE from being looted are presented.

Keywords: Bankruptcy Policy    Strategetic Bankruptcy    Looting Akerlof-Romer Model

Hoff -Stiglitz Mode