Ownership Reform Research Articles

Governance, privatization and foreign direct investment

PurposeThe purpose of this study is to investigate the interplay between economic governance and privatization, and how these two instruments affect the entry mode choice of the foreign firm and the social welfare of the host country.Design/methodology/approachThis study constructs a mixed duopoly model wherein one domestic public firm competes with a foreign firm and investigates the influence of economic governance investment on the domestic government’s optimal degree of privatization choice and the foreign firm’s entry mode choice.FindingsThis study shows that (1) better economic governance enhances the effect of privatization on output, thus resulting in a lower degree of privatization; (2) the optimal privatization policy of the domestic government is partial privatization irrespective of the foreign firm’s entry mode choice; (3) with optimal investment by the domestic government on economic governance, the optimal degree of privatization is higher under FDI than export, and the host-country welfare is also higher under FDI. In particular, this study demonstrates that better economic governance decreases the threshold of the degree of privatization when the foreign firm switches from export to FDI, implying that better economic governance stimulates the foreign firm to undertake FDI in the host country.Practical implicationsThe findings shed some light on both the mixed ownership reform of the SOEs in China and attracting foreign capital inflow to improve the host country’s social welfare.Originality/valueTo the best of the authors’ knowledge, this study constitutes the first attempt to build a theoretical framework to explore how the interactions between economic governance and privatization influence the entry mode choice of the foreign firm.

Impacts of Ownership Balance and Nonexecutive Directors on Bank Performance and Risk Taking: Evidence from City Commercial Banks in China

ABSTRACTThis paper investigates the impacts of nongovernmental stake, ownership balance, and nonexecutive directors on bank performance and risk taking in city commercial banks (CCBs) in China. We find that ownership balance can improve CCBs’ financial performance and reduce their bankruptcy risk as well as nonperforming loan level. Nonexecutive directors can help reduce bankruptcy risk, but have no significant effect on performance or nonperforming loans. The impacts of ownership balance and nonexecutive directors become more prominent when the nongovernmental stake is relatively high, suggesting that mixed ownership reform can promote bank performance and risk control via these two avenues.

Ownership transformation, firm performance and manufacturing growth in China

AbstractMany commentators and researchers have attributed the manufacturing success in China to its ownership reforms. Using a micro database from the Chinese National Bureau of Statistics, this paper documents and quantifies this development. With systematic and robust analyses, it shows that the development of private ownership indeed played an essential role in improving firm performance and the allocation and utilization of production resources in the Chinese manufacturing sector. In addition, the paper estimates the contributions of firms under different ownership to manufacturing growth, showing that the development of private ownership was the driving force of manufacturing growth in China. The strong credible evidence has important policy implications for further maintaining sustainable development in China.

China’s New Push to Reform the State Sector: Progress and Drawbacks

There have been high expectations for renewed reforms of China’s numerous and hugely diverse state-owned enterprises (SOEs). Directed by two important documents of top-level design, the reform plan incorporates useful policy elements, such as allowing the market to play a larger role and making the shift from asset to capital management, all of which demonstrate a move in the right direction. However, many issues, especially the role of the Party and SOE monopoly, remain unsolved and need to be further illuminated. Nevertheless, encouraging progress has been made via pilot programmes and local experiments in areas such as mixed ownership reforms and making the shift to capital management.

Governance Effects of Minority Shareholders under the Internet Environment: From a Perspective of Agency Cost

Governance Effects of Minority Shareholders under the Internet Environment: From a Perspective of Agency Cost

Asymmetric Effect of State-owned Enterprises on Factor Price Distortion

The lag of factor market reform is a prominent problem in China’s reform process, and the negative distortion of factor prices is an important performance. This paper studies the causes of factor price distortion from the perspective of state-owned enterprises. On the one hand, financial repression and ownership discrimination have caused state-owned enterprises to acquire a large amount of capital at below-market prices. It implies that, when the proportion of state-owned enterprises increases, the price of capital decreases, thereby intensifying negative distortion of capital price. On the other hand, state-owned enterprises have the ability and the incentives to pay higher wages to employees, possibly improving negative distortion of labor price instead. The first reason is that, because the state-owned enterprises take the multi-tasks, like maintaining social security and improving the income distribution, the governments provide the subsidies, protection and preferential policies for the SOEs in order to make up for their losses, thus making the SOEs face less competitive pressure. The second reason is governance structure of state-owned enterprises. In SOEs, the managers are more likely to form alliances with employees and pay higher wages to them. From this point of view, the SOEs may reduce the negative distortion in labor price. In order to test the hypotheses above, this paper first measures the distortion of capital price and labor price in 171 three-digit industries using C-D production function method and the China Industrial Enterprise Database. The results show that, the prices of capital and labor are depressed in most of the industries, and the distortion of capital price is more serious than labor price, and both the distortion of capital price and labor price has an upward tendency within the sample period from 1998 to 2007. Then we analyze the effect of state-owned enterprises on factor price distortion by using two-way fixed effect model. The regression results show that the impact of the proportion of state-owned enterprises on factor price distortion is asymmetric, that is, the higher the proportion of state-owned enterprises is, the more serious negative distortion of capital price is, but the negative distortion of labor price is smaller. Even after changing the measurement of the proportion of SOEs, the results are still robust. In order to deal with the endogenous problem, we choose the average age of firms within industries as the instrument variable for the proportion of state-owned enterprises, and the results are the same as the baseline regressions. As Hsieh and Klnow （2009） used 10% as the capital price, we calculate the distortion of capital price by using their data and repeat the OLS regression and IV regression, and the above results still exist. This paper has important policy implications. Although the role of state-owned enterprises in improving the income of laborers is worthy of recognition, it is still necessary to reduce the proportion of state-owned enterprises in competitive industries, as the negative effect of SOEs on the distortion of capital price is much bigger than the positive effect of SOEs on the distortion of labor price. And the other effective ways to eliminate the distortion include deepening the reform of mixed ownership in SOEs, accelerating the reform of financial market, promoting free flow of labor, reducing government subsidies and protection to state-owned enterprises, and expanding opening-up. Those will help to optimize the allocation of resources to improve the overall welfare level of society.

Justification of the essence of forest ecosystems as natural objects of property rights of the Ukrainian people

This article considers the challenges of using and protecting forest ecosystems as natural objects of Ukrainian property rights. It has been proved that as a result of unsystematic nature use and neglect of constitutional requirements, in Ukraine there is a significant decrease in the level not only of forest productivity, but also deterioration of the environment. The directions of the land ownership reform and its natural resources and management approaches in forest ecosystems through the prism of the national interests of Ukraine have been proposed.

江苏省属国有企业混合所有制改革绩效评估思考

江苏省属国有企业混合所有制改革绩效评估思考

The Tunneling of State-Owned Controlling Shareholders and the Incentive of Professional Manager in the Mixed Ownership Reform of Chinese

This paper breaks through the relationship between the administrative appointment manager and the State-Owned controlling shareholders, through taking the professional managers with fairness preferences into the State-owned enterprises corporate governance framework. It finds that the equity incentive for the manager will not affect the tunneling behavior of state-owned controlling shareholders in the State-owned enterprise which is administrative, but the equity incentive for the Professional Managers with fairness preferences can restrain the tunneling of State-Owned controlling shareholders to a certain degree. And that a more perfect legal supervision can also restrain the tunneling of State-Owned controlling shareholders. Finally, main strategies for government were suggested, including developing professional manager market, establishing an institution of professional managers, establishing a fair and open competition environment in the market, and making a more perfect legal supervision.

What Causes the Partial Reforms of Mega-SOEs in China? - A Nash Bargaining Approach

This paper uses a Nash bargaining framework to model the causes of the partial reform equilibrium syndrome that characterizes China’s state sector. The model demonstrates the nature of the bargain between the principals (i.e., officials from China’s State Asset Council) and the agents (large-SOE managers). We derive an indifference payoff point, which maximizes payoffs for both parties without the privatisation of SOEs. Once such payoffs are achieved, further institutional change including the further decentralization of managerial control or ownership reform may generate no better benefits for either party in the game. This condition helps to explain the inability of China’s political economy system to privatize meaningfully China’s large-SOEs for the sake of improving efficiency. In this context, we argue that the power sharing between the officials from the State Asset Council and the large-SOE managers is crucial to understanding why there may be limited progress with SOE reform in the foreseeable future. We find that the model and hypotheses developed in the paper are broadly consistent with the relevant empirical evidence.

Mixed Ownership, Public-private Partnership and the Reform of Market Access Law

The reform of both mixed ownership system and public and private cooperative system are the one body and two wings” which promote the decisive role of the market. The two focus on the special industries and public utilities respectively, carry out the depth and breadth of the market respectively, and expand the investment and business scope of non-public capital. The current market access law system can not be matched with the demand for the reform: in the special industries on which the mixed ownership reform focuses, there are explicit access barriers to non-public capital; in the public utilities that public-private partnership reform focuses on, there are stealth access barriers to non-public capital all the time. In future, China’s market access law system should pay attention to the reform of this situation: on the one hand, the unloading reform of access regulation should be carried out in a number of areas mainly by deregulation, to promote the reduction in barriers to the access to several industries, diversified investment subjects, the optimization of market competition structure, and the increase in competition vitality; on the other hand, when expanding non-public capital investment access, it should make a structural adjustment to government regulation law system, namely regulation reconstruction, to ensure that after non-public capital enters into a number of special areas, the public interests still have no losses.

Fruit-Growing in Latvia – Industry and Science

Abstract In all times, fruit trees for family use have been grown at Latvian farms. Yet these fruits obtained market value only after the land ownership reform in 19th century. This facilitated rapid area increase of different fruit crops, allowing supply with fruits not only the local market, but also for export to the largest cities of Russia. Especially fast development of fruit-growing was observed during the first independent republic (1919–1940). The demand for planting material increased, and plants were imported from Western Europe. Choice of unsuitable cultivars and rootstocks was the main reason of the massive orchard area loss during the following severe winters. After the Second World War, the Soviet powers supported only the establishment of large orchards for processing needs, 200-300 ha, which were unsuitable for the Latvian climate and terrain. At the same time, numbers of allotment gardens rapidly increased and part of their produce was sold also on the market. After regaining of independence and private property, interest in fresh fruit and berry production for market, as well as processing, renewed. It was hindered by lack of continuity in experience and knowledge. Diversity of terrain, soils and climate all demand considerate choice of suitable orchard location and cultivars. Direct use of foreign experience often led to failure. At present, development of the fruit industry is most of all hindered by lack of qualified specialists of different levels, which does not allow to establish an appropriate consulting system. Cooperation of growers for easier marketing also is developing too slowly. Insufficient economic and market research does not allow to balance the demand with increase of plantation area, especially for large-scale processing and export, so strategic guidance of the fruit industry is not possible. Development of fruit-growing is hindered also by a lack of continuous long-term support to horticultural science. As a result of research by the Institute of Horticulture: 1) new local breeding fruit crop cultivars were obtained and recommended for commercial orchards; variety testing including growing technologies was initiated in different regions of Latvia; 2) monitoring of harmful and favourable organisms was conducted in plantations, with development of a system for prognosis and control; and 3) research results were transferred to growers through practical recommendations, publications, seminars and demonstrations.

The role of government in industrial energy conservation in China: Lessons from the iron and steel industry

This paper tracks the energy use and changes to China's energy-efficiency regulatory framework governing the iron and steel industry for the last thirty years. The detailed institutional analysis identifies both abating and augmenting effects of the regulatory framework changes on the energy intensity changes. The paper then assesses the impacts of various other factors on the energy intensity of China's iron and steel industry by using time-series data on the sector level. The quantitative analysis shows that technology progress, specifically the production process transition from high-energy intensive open-hearth furnace (OHF) to more energy efficient basic-oxygen furnace (BOF), is the biggest contributor to energy intensity reductions in China's iron and steel industry in the last thirty years, even after controlling for regulatory change and policy incentives. The ownership reform resulting from changes in the regulatory framework change contributed to energy intensity reductions in China's iron and steel industry, while fast market expansion resulting from market liberalization and regulation decentralization served as a principal barrier for energy efficiency improvements. Government policies, represented by financial subsidies from governments, correspond with energy intensity reductions in key large and medium sized enterprises, but interestingly, seem to be ineffective at producing energy intensity reductions for the industry as a whole. As other research indicated, rising coal prices also contributed to energy intensity reductions in China's iron and steel industry. Finally, the paper concludes that, to further incentivize energy intensity reductions, the Chinese government should consider correcting the negative impacts of the regulatory framework change, as well as transferring production processes to the highly energy efficient electric-arc furnace (EAF) and extending policy regulations to wider enterprise groups.

Research on the Effect of Management Shareholding of the Mixed Ownership Company

In recent years, China has continuously deepened economic system reform. As the reform of mixed ownership was carried out, corporate governance research has became better, and the management shareholding got more and more attention. In this paper, based on the sample of Chinese listed companies between 2011 and 2015, it is found that there is no significant effect on the shareholding of management in the mixed ownership enterprise. The positive correlation effect of the equity incentive to the state-owned enterprise is slightly more than that of the private enterprise. Aiming at the conclusion of the study, the reasons were analyzed and some suggestions were put forward.

How will financial liberalization change the Chinese economy? Lessons from middle-income countries

This study projects the impact of financial liberalization in China by drawing on the experiences of 60 middle-income economies over a period of four decades. Our results suggest that comprehensive financial reform could increase GDP growth per capita by up to 1.4% points and raise the real bank lending rate by up to 5.1% points. Perhaps the most unexpected result is a massive increase in net capital inflows by up to 20.1% of GDP, which could plant seeds for financial risks later. The probability of a currency crisis could increase by up to 21.7% points, but the probability of a banking crisis may rise or fall, depending on the quality of bank supervision. We also find different policy impacts of different financial reform measures. Bank ownership reform and regulatory reform are critical in supporting economic growth and financial stability. These findings offer important policy implications on how to derive maximum benefit from financial reforms while effectively mitigating potential risks.

Extending Metafrontier Technique to Input-Oriented Distance Functional Form: An Application to China's Urban Water Utilities

This paper extends two different metafrontier models proposed by O’Donnell et al. (2008) and Huang et al. (2014) to the input-oriented distance functional form which has been mentioned by O’Donnell et al. (2008, p250) but has not been done so far partly due to endogenous problem. As noted by Kumbhakar (2013, p465), there are a few industries such as public utilizes and banks where the hypothesis of exogenous outputs is satisfied. Thus, the metafrontier framework can be used in those industries without the problem of endogeneity. The extended model is then applied to a panel of Chinese urban water utilities. The estimated results show that the average technical efficiency for Chinese urban water utilities as a whole is below 60%, indicating the presence of much technical inefficiency. Our findings also show that the ownership reform happened in China cannot guarantee the efficiency growth in public utilities. Thus, Chinese regulatory agents should deepen the reform and change the current rate of return regulation to a more incentive-based one and require utilities to improve their efficiency before applying for raising water price.

Ownership reform and the changing manufacturing landscape in Chinese cities: The case of Wuxi.

Since the economic transition, manufacturing in China has undergone profound changes not only in number of enterprises, but also in ownership structure and intra-urban spatial distribution. Investigating the changing manufacturing landscape from the perspective of ownership structure is critical to a deep understanding of the changing role of market and government in re-shaping manufacturing location behavior. Through a case study of Wuxi, a city experiencing comprehensive ownership reform, this paper presents a detailed analysis of the intra-urban spatial shift of manufacturing, identifies the location discrepancies, and examines the underlying forces responsible for the geographical differentiations. Through zone- and district-based analysis, a distinctive trend of decentralization and suburbanization, as well as an uneven distribution of manufacturing, is unveiled. The results of Location Quotient analysis show that the distribution of manufacturing by ownership exhibits distinctive spatial patterns, which is characterized by a historically-based, market-led, and institutionally-created spatial variation. By employing Hot Spot analysis, the role of development zones in attracting manufacturing enterprises of different ownerships is established. Overall, the location behavior of the diversified manufacturing has been increasingly based on the forces of market since the land marketization began. A proactive role played by local governments has also guided the enterprise location decision through spatial planning and regulatory policies.

From Coal Mining to Coal Chemicals? Unpacking New Path Creation in an Old Industrial Region of Transitional China

AbstractThis paper examines the path‐creation mechanism of the coal‐chemical industry and its relatedness to the old path of the coal mining industry in an old industrial region of China. It reveals that the rise of the new path benefits from the old path to a limited extent. The strong multi‐scalar structured path dependence upon the coal industry fundamentally constrained local actors to mobilize resources from the old path for new industrial options. The findings show that on the basis of local (pre)existing fertilizer production assets, the new path was created by a combination of market‐oriented state‐owned enterprise ownership reforms, market induced trans‐local entrepreneurship and local state‐led developmental strategies. This form of path creation contributes to the extant literature, presenting a complex, multi‐scalar, and multi‐actor manner of industrial restructuring involving dynamic agencies that is not merely historically conditioned by place‐specific assets and structures but also affected by the changing extra‐regional political‐institutional environment.

Productivity growth, case mix and optimal size of hospitals. A 16-year study of the Norwegian hospital sector

Background and objectivesThis paper analyses productivity growth in the Norwegian hospital sector over a period of 16 years, 1999–2014. This period was characterized by a large ownership reform with subsequent hospital reorganizations and mergers. We describe how technological change, technical productivity, scale efficiency and the estimated optimal size of hospitals have evolved during this period. Material and methodsHospital admissions were grouped into diagnosis-related groups using a fixed-grouper logic. Four composite outputs were defined and inputs were measured as operating costs. Productivity and efficiency were estimated with bootstrapped data envelopment analyses. ResultsMean productivity increased by 24.6% points from 1999 to 2014, an average annual change of 1.5%. There was a substantial growth in productivity and hospital size following the ownership reform. After the reform (2003–2014), average annual growth was <0.5%. There was no evidence of technical change. Estimated optimal size was smaller than the actual size of most hospitals, yet scale efficiency was high even after hospital mergers. However, the later hospital mergers have not been followed by similar productivity growth as around time of the reform. ConclusionsThis study addresses the issues of both cross-sectional and longitudinal comparability of case mix between hospitals, and thus provides a framework for future studies. The study adds to the discussion on optimal hospital size.

Study on the Problems of Management Shareholding and the Mixed Ownership

In recent years, managerial ownership has begun to be used as an incentive mechanism in China. Managerial ownership is one of the ways to realize the mixed ownership reform of state owned enterprises. In this paper, the impact of executive stock ownership on corporate performance of China's state-owned listed companies that mixed ownership has been achieved is analyzed. The conclusions are as follows: the state-owned listed companies management ownership and corporate performance has a positive correlation. The financial performance of the company increases with the proportion of management shareholding, ownership concentration and equity balance. There is a significant negative correlation between the proportion of independent directors and the rate of return on net assets, which shows that the independent directors of state-owned enterprises in China have not played its due role in the governance of state-owned enterprises.