State ownership reinvented? Explaining performance differences between state‐owned and private firms

Abstract

Manuscript Type Empirical Research Question/Issue This study aims to understand the implications of the corporate governance arrangements in state‐owned enterprises (SOEs) that are publicly listed in terms of firm performance relative to that of private firms. Research Findings/Insights Using a new database of 477 large, listed SOEs observed between 1997 and 2012 in 66 developed and emerging countries, we use matching techniques to show that these firms do not underperform similar private firms, except when the former face shocks that prioritize their social and political objectives, such as during severe recessions. These findings demonstrate the need to revise existing theories of SOE underperformance. Theoretical/Academic Implications We expand the traditional agency view of SOEs by introducing principal–principal conflicts that prevail in publicly traded firms. We argue that governments try to steer SOEs to pursue social and political objectives, which can lead to inefficiencies, but they also provide them rents and protection, factors that should lead them to perform as well or better than similar private firms. Thus, our theory of state ownership argues that their advantage or disadvantage over similar private firms cannot be identified from the theory and thus needs an empirical test. Practitioner/Policy Implications We modify the simplistic view that SOEs are inefficient and highlight that SOEs that compete with private firms may have advantages that give them a competitive edge. This has implications not only for firm‐level strategy, but also for competition policy worldwide.

Modern Trends in Governance of State Ownership Relations

“…Umantsiv, O. Ishchenko (Umantsiv, Iu., Ishchenko, O., 2017) and others. In the works of S. Lazzarini (Lazzarini, 2018), O.Tkachuk, V. Khachatryan, (Tkachuk, Khachatryan, 2019), V. V. Bokovets et al (Bokovets, Zamkova, Makhnachova, 2017) the effectiveness of state and private enterprises is compared. State and private property rights, their specification and erosion are discussed in the works of R. Shiryaeva (Shiryaeva, 2011), M. Justesen (Justesen, 2015).…”

Board of directors, performance and firm value in Brazilian listed state-owned enterprises

“…In hybrid SOEs, conflicts in the relationship between governments and public firms can negatively impact these firms' management and consequently, their performance. This occurs because the government attempts to extract political benefits from such firms, expropriating private investors' return on capital (Lazzarini and Musacchio;. Governments can dominate the boards' behavior by directly appointing directors that suit their interests.…”

“…Governments can extract financial benefits from these firms, expropriating other investors' capital. Conflicts surrounding the principal-principal relation are more likely when the government is the majority shareholder because it can use its voting power and control to obtain political benefits (Lazzarini and Musacchio;.…”

Giants: The Global Power Elite

“…Moreover, the nature of state-owned corporation has changed from the past socialist model. The Global firms that are partially or completely state-owned are growing (in China, Russia, Brazil and elsewhere) (Musacchio and Lazzarini 2012;Lazzarini and Musacchio 2018). Most state-capitalist countries today advance neoliberal economic and political policies using control over state-owned firms as part of their efforts to accumulate more profits.…”