Kong & He, Analysis on the Conduct of Managing Agent of State-owned Enterprises Based on Dual Reputation

Abstract:

The state-owned enterprise managers have a great feature, the operator is appointed by the superior government, the operators’ attention the relationship with administrative organization, the managers of state-owned enterprise have a strong consideration of reputation. The operator’s retention and promotion depends on the operator’s market reputation and political reputation. In the dual reputation, the operator behavior is divided into the normal behavior and the behavior of rent-seeking efforts, the operators maximize their expected utility through choosing their conduct. We analysis which factors influence the managers’ behavior, and study how to stimulate normal effort, reduce the rent-seeking behavior.

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Haveman, Jia, Shi & Wang: The Dynamics of Political Embeddedness in China

Abstract:

Starting in 1978, markets developed rapidly in China, creating new business opportunities and heightening uncertainty. The political system remained autocratic, so business remained dependent on state officials – increasingly on local officials, as authority was decentralized. Moreover, local officials depended more on business to meet the central state’s economic targets. Therefore, state-business relations became more mutual and thus more embedded and normative, more imbued with trust rooted in shared goals. As market development proceeded, these changes made business-state ties more beneficial to firms: firms that became politically embedded (tied to state authorities) faced less uncertainty and more easily grasped business opportunities, and so improved their performance.

We test this prediction and then investigate two important contingencies (industry and firm size) and two causal mechanisms (access to bank loans and protection from pressure to make related-party loans). Analysis of panel data supports most predictions, demonstrating the importance of attending to institutional context (state policy and authority structures) and probing  t temporal and cross-sectional variation: institutional context fundamentally shapes the nature and impact of exchange relations. Our analysis also indicates that China’s economy remains a form of networked capitalism, which reinforces the importance of context – this time national.

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Baccini, Impullitti & Malesky: Globalization and State Capitalism – Assessing Vietnam Accession to WTO

Abstract:

The recent literature on trade and firm heterogeneity highlights the importance of productivity gains from trade-induced selection and reallocation. Many developing and fast growing economies that are progressively opening up to trade are characterized by a significant presence of State-Owned Enterprises (SOEs) next to Private-Owned Enterprises (POEs). Can we still expect the same gains through the same channels in economies with a strong presence of SOEs? Which features of SOEs are key in shaping the effects of trade liberalization? We explore these questions first by introducing SOEs in a model of trade with firm heterogeneity. The model shows that the inefficiencies produced by SOEs can hinder the reallocation process and potentially reduce the productivity gains from trade. We test the predictions of the model using a new dataset of Vietnamese firms, and assess the effects on Vietnam’s 2007 access to the WTO. The standard selection effect triggered by trade liberalization is confirmed for private firms, while it is silent for SOEs. Moreover, we find that, as result of multilateral trade liberalization,  productivity increases in POE-dominated sectors, and less so or not at all in SOE-dominated sectors. Our estimates suggest that WTO entry is associated with an increase in average productivity of 6.2 percent in the period 2005-2013. Finally, we show that the overall productivity gains would have been more than 40 percent larger if SOE-dominated industries had been replaced by POE-dominated industries. Our results suggest that SOEs represent a large
obstacle to trade-induced efficiency gains.

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Lyu & Zhang: Institutional Investors and the Cost of Equity Capital – Evidence from Chinese Listed Companies

ABSTRACT:

This paper investigates the relationship between institutional investors and the company’s cost of equity capital. Especially considering the large proportion of state-owned shares in China’s capital market; we divide the Chinese listed companies into state-owned shares and non-state-owned shares, and investigate the different effects of institutional investors on the company’s cost of equity capital in two groups. This study confirms that with the increase of the proportion of institutional ownership, the company reduced the cost of equity capital; Relative to state-owned enterprises, institutional investors help to reduce much more cost of equity capital of non-state-owned enterprises.

 

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Nyamita, Garbharran & Dorasamy: Factors Influencing Debt Financing within State-owned Corporations in Kenya

ABSTRACT:

Debt financing is deemed crucial for economic development, as evidenced by the positive relationship between financial deepening and economic growth. Majority of studies on debt financing have been undertaken using data from developed economies, focusing more on private sector non-financial corporations. This study, therefore, attempts to fill the gap in the literature by investigating the factors influencing debt financing, using data from corporations within the public sector and from a developing economy. The study applied the fixed effects (FE), random effects (RE) and the general methods of moments (GMM), using the panel data regression analysis. Profitability, asset tangibility and corporation growth, were identified to be the main factors influencing debt financing within state-owned corporations in Kenya.

 

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Clò, Fiorio & Florio: Ownership and performance in the market for corporate control – the role of state‐owned enterprises

ABSTRACT:

Despite a wave of privatizations in the past three decades, several governments own major corporations in industries such as energy, mining, telecommunications, transport, banking, manufacturing, in emerging economies as well as in some developed ones. Contemporary state‐owned enterprises (SOEs) are increasingly active players in the international and domestic markets for corporate control, through mergers and acquisitions. This paper contributes to a new strand of literature on SOEs form the angle of the market for corporate control. Do the SOEs, behave as their private counterparts when purchasing other firms? The standard prediction of the “inefficient management hypothesis” is that firms that perform well will buy firms of inferior managerial quality (Manne, 1965). An alternative prediction is offered more recently by Rhodes‐Kropf and Robinson (2008), who suggest that for US listed companies “like buys like”. To test both the alternative views and the research question on how public ownership has an impact on the market for corporate control, we build a new dataset from Zephyr and Orbis, two databases developed by the Bureau Van Dijk since early 2000s. Our sample is composed by 25,332 deals worldwide, of which around 10% are performed by a SOE acquirer. By focusing on the difference of the return on sales between the acquirer and the target firm, and controlling for different factors, we find that the Rhodes‐Kropf and Robinson (2008) prediction is more likely for listed companies, but not for the others; SOEs tend to buy “lower” relative to their own performance than private companies do, while their behavior converges towards the private benchmark when the SOEs are listed. We conclude that mergers and acquisitions by SOEs in the years we consider are not as much at variance with the “inefficient market hypothesis” as private firms.

BĂCANU: The Performance of Public Organization – Still Unclear

ABSTRACT:

Nowadays, the present discussions about the organisation’s performance have revealed the fact that the concept is unclear. The use of the concept is more difficult in public organisations. The paper presents the case of Romanian SOE Hidroelectrica and the case of public universities, to pinpoint the fact that ambiguous objectives are the cause of a dilemmatic management. The general opinion is that the results of the public organisations management reflect a poor performance of the latter.

 

Available for download here.

Lazzarini & Musacchio: State Ownership and Firm-level Performance

ABSTRACT:

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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Jiang: Enlarged State Power to Declare Nullity – The Hidden State Interest in the Chinese Contract Law

ABSTRACT:

This article is on the hidden state interest that article 52(§1) of the Chinese Contract Law protects and the questionable applicability of freedom of contract to Chinese state-owned enterprises (hereafter “SOEs”). In common law, fraud and duress make a contract voidable. In Western civil law jurisdictions, including Louisiana, fraud and duress make a contract relatively null. Article 52(§1) of the Chinese Contract Law renders a contract induced by fraud and duress absolutely null (null and void if using common law terminology) when state interest is harmed. At the same time, according to article 54 of the Contract Law, fraud and duress only make a contract relatively null just like in Western laws. The situation is further complicated by article 58 of General Principles of Civil Law (hereinafter “G.P.C.L.”), which renders all civil juristic acts absolutely null when induced by fraud and duress.

To understand when a contract is null or annullable one has to reconcile these three statutory provisions and figure out what the state interest article 52(1) refers to. This article attempts to demystify this state interest through a historical survey of the evolution of contract law in the communist regime in China in comparison with the similar path Soviet civil law had gone through. If it simply means public interest, Chinese law is no different than the western counterparts. If it means something different, a secretive enlarged state power to declare nullity and invade freedom of contract might come with this law. Given the principal-agent relationship between the state and SOEs regarding the ownership rights of SOE assets, the absence of a sufficiently competitive market, the incentive incompatibility between the state and SOEs, an enlarged state power over contractual autonomy is therefore implied and justified. This article suggests that such a state interest be state-owned enterprises’ financial interest, which is different from public interest. As a result, freedom of contract shall not be applicable to Chinese SOEs when ownership rights and a competitive market are missing, and a different interpretation of nullity law should be adopted to protect SOEs’ financial interest.

 

Available for download here.