Can Chinese State Owned Enterprises Fulfill Both Social and Corporate Objectives?

Abstract

In China, state governance in corporations serves the purpose of Party control over the political, social, and economic development and most importantly, stability of the country. Therefore, Chinese state owned firms have equally important corporate and social objectives. Both objectives must be controlled and managed well through the corporate sector in order for China to successfully advance its economy and preserve its political order. While the state governance relationship with performance of Chinese corporations is well studied, the state relationship with employment is not studied at all. Therefore, we propose that state governance will have effects on performance and employment. This study examines these relationships by panel regressions for a large and recent sample of 27,896 Chinese publicly listed firms during 2001-2011.The results affirm a non-linear, concave relationship between state ownership and financial performance as measured by Tobin’s Q and stock returns. This relationship suggests private governed and highly state governed firms have lower performance than mixed governed firms. Second, results strongly indicate that state governance positively affects employment stability and employment numbers. As well, while state governed firms appear to be achieving high employment and stability performance, they are poorer in creating new employment. Privatized firms are much better at creating job growth. These results support our hypothesis of the employment objective of Chinese firms. Overall, we conclude that state governance does indeed determine both corporate and social objectives in Chinese firms.