Majority State Ownership Research Articles

Control-Enhancing Mechanisms in State-Owned Companies – Analysis of Companies Listed on the Warsaw Stock Exchange

Abstract Purpose In countries with a developed economy, including Poland, the state seeks to retain control of enterprises (companies) operating in so-called strategic sectors, such as fuel and energy, chemical industry, transport, and telecommunications infrastructure. Proper control of these entities not only determines the effective implementation of economic policy, but it is also important to ensure the economic sovereignty of the state and public security. The purpose of this study is to identify and analyze control-enhancing mechanisms in SOEs listed on the Warsaw Stock Exchange (WSE), taking into account the division between majority and minority state ownership. Methodology Analysis of documentation. Findings Based on the analysis of statutes and shareholder structures of the investigated entities, it is established that for companies with minority state ownership, the state uses control-enhancing mechanisms to gain effective control of the company. Similar mechanisms are also applied in companies with majority state ownership, where these mechanisms contribute to achieving full control of the company. The most commonly used mechanism is a dominant shareholder status and limitation of voting rights for shareholders other than the state. Originality Apart from state-owned companies, this analysis also included companies indirectly controlled by the state.

Tax avoidance and state ownership — The case of Sweden

We propose a simple theoretical model for how a company with both private and state shareholders decides on its optimal tax policy. The model predicts that even in the absence of state shareholding, a company will not always pick a tax policy that minimizes taxes. Conversely, majority state ownership will generally not result in zero tax avoidance. Using panel regressions on the entire population of state-owned as well as publicly listed Swedish companies from 2000–2019, we find that a one standard deviation increase in state ownership increases corporate tax payments by around 14%.

Entrepreneurial finance meets government investment at initial public offering: The role of minority state ownership

AbstractManuscript TypeEmpiricalResearch Question/IssuePrior studies on the role of state investment tend to focus on either majority state ownership or aggregating majority and minority state ownership. Drawing upon signaling theory, we theorize that the negative intent signaled by minority state ownership reduces initial public offering (IPO) market performance. In addition, we hypothesize that founders as chief executive officers and outside directors not from state‐owned enterprises, representing the positive signal of intent, can attenuate the negative effect of minority state ownership.Research Findings/InsightsThe empirical results, based on 274 small and private firms in China's newly launched stock market, provide support for the hypotheses based on price premium, first‐day turnover rate, first‐day price increase, underpricing, and Tobin's Q.Theoretical/Academic ImplicationsTo the best of our knowledge, this is the first study to examine how minority state ownership affects small and private firm IPO performance. It suggests new avenues of research on ownership structure and the principal‐principal problem in the corporate governance of emerging economies. This study reveals the distinctive nature and effect between controlling state ownership and minority state ownership. The current research also opens new avenues of research on applying signaling theory, signal of intent in particular, in an IPO study.Practitioner/Policy ImplicationsThis study reveals the negative intent signaled by minority state ownership in privately controlled firms at IPO due to the weak monitoring capacity, limited resource provision, and enhanced political interdependency between private controllers and minority state owners. As minority state ownership becomes a more salient phenomenon in emerging markets, it guides policy makers in governance choices for government‐funded firms.

Can monitoring improve the performance of state-owned firms? Evidence from privatization in a large emerging market

While privatization has long been a central pro-market strategy for promoting competitiveness, little is known about which aspects of this multilevel process impact firm performance. Agency theory predicts that privatization will improve firm performance due to changes in monitoring by shareholders, the incentives of management, and the political control of the government. Measuring how each of these three pathways impact firm performance separately is difficult, however, as most privatizations result in the transfer of both ownership and control to private investors, influencing several of these pathways at once. This article is able to circumvent this limitation by examining changes to firm performance from the minority privatization of Indonesian state-owned firms during whic\h firms experience only changes in monitoring, as majority state ownership and control remain the same. Difference-in-differences analyses suggest that changes to monitoring improve firm performance by 9–13%, controlling for cross-sectional, time-invariant, and time-varying firm characteristics, macroeconomic issues affecting all firms, selection issues, and considering several alternative hypotheses. Altogether, this article suggests that firm performance via privatization can improve through changes to monitoring alone, without implementing the costly organizational changes required by complete privatization or requiring that the state relinquish control of socially important firms.

State ownership, soft-budget constraints, and cash holdings: Evidence from China’s privatized firms

We study the relation between state ownership and cash holdings in China’s share-issue privatized firms from 2000 to 2012. We find that the level of cash holdings increases as state ownership declines. For the average firm in our sample, a 10 percentage-point decline in state ownership leads to an increase of about RMB 55 million in cash holdings. This negative relation can be attributable to the soft-budget constraint (SBC) inherent in state ownership. The Chinese financial system is dominated by the state-owned banks, an environment very conducive for the SBC effect. We further examine and quantify the effect of state ownership on the value of cash and find that the marginal value of cash increases as state ownership declines. The next RMB added to cash reserves of the average firm is valued at RMB 0.96 by the market. The marginal value of cash in firms with zero state ownership is RMB 0.36 higher than in firms with majority state ownership. The SBC effect exacerbates agency problems inherent in state-controlled enterprises, contributing to their lower value of cash.

Can Monitoring Improve the Performance of State-Owned Firms? Evidence from Privatization in a Large Emerging Market

While privatization has long been a central pro-market strategy for promoting competitiveness, little is known about which aspects of this multilevel process impact firm performance. Agency theory predicts that privatization will improve firm performance due to changes in monitoring by shareholders, the incentives of management, and the political control of the government. Measuring how each of these three pathways impact firm performance separately is difficult, however, as most privatizations result in the transfer of both ownership and control to private investors, influencing several of these pathways at once. This article is able to circumvent this limitation by examining changes to firm performance from the minority privatization of Indonesian state-owned firms during which firms experience only changes in monitoring, as majority state ownership and control remain the same. Difference-in-differences analyses suggest that changes to monitoring improve firm performance by 9-13%, controlling for cross-sectional, time-invariant, and time-varying firm characteristics, macroeconomic issues affecting all firms, selection issues, and considering several alternative hypotheses. Altogether, this article suggests that firm performance via privatization can improve through changes to monitoring alone, without implementing the costly organizational changes required by complete privatization or requiring that the state relinquish control of socially important firms.

Labor Allocation in China: Implicit Taxation of the Heterogeneous Non-State Sector

Using China’s Annual Survey of Industrial Production, we estimate the marginal revenue product of labor (MRPL) for all state-owned and above-scale non-state manufacturing firms for 2001–2004 and 2004–2007. We find that labor productivity varies systematically within industries by ownership type and that non-state firms face implicit labor taxation relative to state-owned enterprises (SOEs). We also find that, in keeping with ongoing reforms of the state sector, ownership differentials fall over time, with gaps between non-state enterprises and SOEs falling by about half over time. Within the non-state sector, enterprises registered as legal persons have higher MRPL, on average, than do firms registered as collective or private enterprises. Disaggregating this group using information on equity shares reveals that firms registered as legal persons and majority owned by legal persons have the highest MRPL relative to SOEs. Indeed, these enterprises show significantly higher MRPL than those firms directly controlled by the state. Legal-person firms with majority state ownership have MRPL differentials similar to those for legal-person firms with majority private or majority collective ownership. This evidence is consistent with continuing, albeit diminishing, implicit labor subsidies for directly SOEs but not for firms whose shares are owned by the state, even if those shares are registered to legal persons. (JEL codes: L16, O53, P23, P31)

Corporate governance and bank performance in China

This paper examines the effects of corporate governance on bank performance in China over the period 1995–2008. Bank performance has improved significantly and the mean profit efficiency level is estimated at 61%. The results suggest that differences in corporate governance have significant impacts on bank performance: banks with majority foreign ownership are most profitable while banks with majority state ownership are most unprofitable. We find no evidence that foreign minority ownership in domestic banks improves performance. Banks with more dispersed ownership are found to be more profit efficient.

Government guarantees and public debt in Croatia

Government financial and performance guarantees have been issued in Croatia since 1996, to support funding and ensure favourable borrowing conditions in the financial market for companies in majority state ownership. However, government guarantees have rarely been part of defined strategies and goals of public debt and risk management. Despite their steady growth, the structure of active guarantees and their influence on Croatian public debt are still unknown. This paper analyses the amount and structure of state guarantees, their maturities and the authority and accountability for their management, and it compares the structure of guarantees in terms of economic sectors. The main objective of the paper is to determine the influence of government guarantees on the public debt growth.

Government intervention and investment efficiency: Evidence from China

The extant corporate investment literature has documented that information asymmetry and agency conflicts between managers and outside investors prevent firms from making optimal investment decisions. In this study, we investigate whether government intervention, as another form of friction, distorts firms' investment behavior and leads to investment inefficiency. Using Chinese data, we test this by measuring government intervention at two different levels. First, we compare investment efficiency between SOEs and non-SOEs. We find that the sensitivity of investment expenditure to investment opportunities is significantly weaker for SOEs. Second, we measure government intervention by whether a firm is politically connected through the employment of top executives with a government background. We find that political connections significantly reduce investment efficiency in SOEs. However, we do not find such evidence in non-SOEs. Taken together, our findings suggest that government intervention in SOEs through majority state ownership or the appointment of connected managers distorts investment behavior and harms investment efficiency.

The Determinants and Value of Cash Holdings: Evidence from China’s Privatized Firms

We study the relation between state ownership and cash holdings in China’s share-issue privatized firms from 1993 to 2007. We find that the level of cash holdings declines as state ownership increases. This negative relation is attributable to the soft-budget constraint (SBC) inherent in state ownership. The Chinese financial system is dominated by the state-owned banks, an environment very conducive for the SBC effect. We further examine and quantify the effect of state ownership on the value of cash and find that the marginal value of cash declines as state ownership increases. The next RMB added to cash reserves of the average firm is valued at RMB 0.94 by the market. The marginal value of cash in firms with zero state ownership is RMB 0.33 – RMB 0.47 higher than in firms with majority state ownership. The SBC effect exacerbates agency problems inherent in state-controlled enterprises, contributing to the lower value of cash.

The Effects of Majority State Ownership of Significant Economic Sectors on Corruption: A Cross-Regional Comparison

Given both corruption's and bureaucratic inefficiency's importance for development and good governance, understanding their causes is paramount. This paper argues that majority state ownership of most the most important economic sectors of a country results in higher levels of corruption and inefficiency. When political and managerial elites both own and manage the country's most important economic resources, they have greater incentives for corrupt or inefficient behavior. These elites use national resources at their disposal more for short-term personal and political goals than for long-term economic ones. This paper tests this hypothesis on a relatively underused, but often cited, data set from the 1980s. Using a cross-national, regression analysis, this paper finds that the best predictors a country's level of corruption or bureaucratic inefficiency are these: majority state ownership of significant economic sectors, levels of GDP per capita, levels of government spending, and levels of democracy. Other factors, such as common law heritage, percent of population that is Protestant, federalism, economic freedoms, or mineral/ oil exporting, were not consistent, significant predictors of either bureaucratic inefficiency or corruption. We also argue that Tobit may be the best estimation procedure for these data.

Privatization, State Ownership, and Bank Performance in Egypt

Summary In this study, we address the financial and operating performance of a sample of 12 Egyptian banks from 1996 to 1999, during which time control was transferred from the state to the private sector. Following privatization, the results indicate that some profitability and liquidity ratios for privatized banks decline significantly, but other performance measures are virtually unchanged. Antithetically, the results indicate that the relative performance changes of privatized banks were better than those of mixed banks with majority state ownership but worse than those of banks with other ownership forms (private, state-owned, and mixed private ownership). However, the study finds a strong evidence to support the theory and previous empirical findings that banks with greater private ownership perform better.

The Road Oft Traveled: Development Policies and Majority State Ownership of Industry in Africa

The Road Oft Traveled: Development Policies and Majority State Ownership of Industry in Africa

The Road Oft Traveled: Development Policies and Majority State Ownership of Industry in Africa. By John James Quinn. Westport, CT: Praeger, 2002. 256p. $64.95

The Road Oft Traveled: Development Policies and Majority State Ownership of Industry in Africa. By John James Quinn. Westport, CT: Praeger, 2002. 256p. $64.95

The road oft traveled: developmental policies and majority state ownership of industry in Africa

The road oft traveled: developmental policies and majority state ownership of industry in Africa

Does Privatisation Improve Performance of Industrial Enterprises? Empirical Evidence from Russia

This study, based on panel data from 189 industrial enterprises in 1992‐96, shows that privatisation 'on average' produces little improvement in performance of Russian enterprises. However, disaggregating the process, we reveal that methods of privatisation do influence performance but the impact is not always positive. The state seems to be a passive shareholder. At the same time, our results suggest that majority state ownership is preferable to a state minority stockholding, possibly because the absence of a monitoring shareholder in the latter case does not permit managers to achieve their own objectives at the expense of other shareholders.

State Ownership and the Evolution of Italian Corporate Governance

State ownership, pyramidal groups, family trust and a minor role for banks and other financial institutions in the corporate governance of both large and small enterprises are the structural features of Italian capitalism today. This paper offers a critical analysis of state ownership by analysing the evolution of Italian corporate governance since the Second World War. It concludes that full or majority state ownership of corporations can be effective in separating ownership and control during stages of powerfully accelerating growth and when shifts in the sectoral balance are needed; that state-owned enterprises must not be burdened with 'special social objectives'; and that the system is bound to degenerate without a functioning political market to guarantee democratic changes of parties and power and if the 'mission' culture of public managers is eroded.