This study examines factors influencing full (FP) versus partial (PP) privatization and how markets respond to government control in PP and FP firms. Exploiting China’s 2005 NTS reform as a natural experiment, we find that treated PP firms experienced significantly lower post-reform performance, driven by persistent private benefits of control, failure to adopt value-maximizing behavior, and unchanged liquidity and information asymmetry. In contrast, FP firms eliminated all NTS, maximized value; showed higher stock market liquidity and lower information asymmetry, improved market performance; and gained market confidence in the post-reform period. These findings challenge the effectiveness of China's authoritarian approach to private sector development.