Lazzarini & Musacchio: State Ownership and Firm-level Performance


State-owned enterprises (SOEs) remain widespread in various countries even after decades of privatization and liberalization reforms. In this paper we analyze a large dataset of listed SOEs, both majority- and minority-owned, covering several countries and industries between 1997 and 2012. We compare these SOEs to a sample of private firms using matching methods combined with differences-in-differences estimation to control for the endogenous choice of state ownership. In line with arguments proposing an inherent “liability of stateness,” we find that SOEs exhibit significant performance gaps—i.e., they underperform private firms with similar characteristics based on indicators of profitability and efficiency—especially when these firms are subject to external changes that require rapid adjustment or that increase the temptation of the government to intervene (namely, economic recessions and election years). However, these negative effects are relatively less relevant in the case of minority SOEs. Furthermore, adopting novel techniques to gauge heterogeneous treatment effects, we find some evidence of negative selection in the choice of state ownership: firms more likely selected as SOEs tend to have a larger performance gap around recessions, compared to private firms. Although the effect of elections seems to disappear in developed economies, majority-owned SOEs in those economies still exhibit significant performance gaps around events of strong economic downturn.


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