The Financial Sustainability of State-Owned Enterprises in an Emerging Economy

Abstract

When the government creates state-owned enterprises (SOEs), one of the primary purposes is to reduce its financial burden in the long run, also called financial sustainability. Nonetheless, previous research has pointed out that SOEs struggle to achieve financial sustainability due to government intervention. In this study, we examine the relationship between the financial sustainability of SOEs and government intervention in Malaysia. We take a novel approach, using share ownership to measure government intervention. Our results show that the threshold effect of government ownership on financial sustainability in Malaysia is around 27%. The findings prove that the SOEs of an emerging country could reach financial sustainability only if the government ownership is below the threshold. Finally, this study discusses the policy implications of our findings for SOEs. The government of Malaysia should propose a road map to gradually reduce its ownership of SOEs below the threshold.

Managing Trade‐Offs Between Environmental, Social, Governance and Financial Sustainability in State‐Owned Enterprises: Insights from an Emerging Market

“…States around the world establish SOEs to use them to fulfil certain socioeconomic policy objectives that the Public Service Act does not permit. Although SOEs are the primary vehicles used by many states to deliver public goods and services, in many parts of the world these SOEs do not operate in a sound competitive and regulatory environment (Masekoameng and Mpehle 2018), such that they often do not fulfil their mandates and are always requiring bailouts, thereby not being financially sustainable (Lee et al 2022). The pressure from stakeholders for SOEs to be financially sustainable, coupled with the recent call for them to also embrace ESG practices, appears to be too much for them to handle, especially in countries with developed SOE sectors, which will have little SOE managerial capability.…”

“…As indicated earlier, Masekoameng and Mpehle (2018) have documented the sources of financial unsustainability in SOEs. Lee et al (2022) analyse how government intervention in Malaysia affects the financial viability of SOEs. The threshold impact of government ownership on financial sustainability in Malaysia is approximately 27%, according to their findings.…”

“…However, this may only be possible where there is little or no political interference. Lee et al (2022) examined the relationship between the financial sustainability of SOEs and government intervention in Malaysia and report that the SOEs of an emerging country could reach financial sustainability only if government ownership and political interference are minimal.…”

“…In this context, this paper explores the means by which SOEs in South Africa, where sustainability reporting is mandatory for SOEs but SOEs do not necessarily adhere to the provisions of their corporate governance code, such as the Protocol on Corporate Governance in the Public Sector and the KING IV Corporate Governance Code, manage trade-offs between ESG and financial sustainability in the course of fulfilling their mandates. We follow Lee et al (2022) in defining financial sustainability in the context of SOEs as an indication of whether SOEs can continue to operate without wasting taxpayers' monies and requiring state bailouts, as is often the case. The fact that SOEs in South Africa are mandated to fulfil both social and commercial objectives (Department of Public Enterprises 2017) indicates that conducting such a study on SOEs promises useful insights.…”

Discussion on key technologies of big data in financial budget performance management in low-carbon economy

“…The relationship between the financial sustainability of state-owned enterprises and government intervention. Lee et al (2022) has taken a novel approach, using equity to measure government intervention. The results show that only when the government ownership is lower than the threshold, the state-owned enterprises in emerging economies can achieve financial sustainability.…”