Presence Of State-owned Enterprises Research Articles

To switch or not to switch? The effect of audit firms’ economies of scale on audit firm switches after audit price deregulation in China

We exploit the unique setting of China’s 2014 audit price deregulation policy to examine whether audit firms use their economies of scale (EOS) to compete for clients. We find a significant increase in client firms switching from a non-EOS auditor to an EOS auditor after the audit price deregulation policy was implemented. The additional analyses show that EOS audit firms are more likely to offer audit fee discounts than non-EOS audit firms while retaining audit quality. We also find that the auditors’ EOS effect is more pronounced for highly homogeneous industries and firms paying high abnormal audit fees, firms in financial distress, and firms receiving less capital market attention than for less homogeneous industries and firms paying low abnormal audit fees, financially stable firms, and firms receiving more capital market attention. Finally, we find that the presence of state-owned enterprises and political connections both separately and jointly moderate the effect of audit firm–client realignments from a non-EOS auditor to an EOS auditor after the audit price deregulation. Overall, our study provides important insights for policymakers and regulators reviewing and developing new policies on audit services.

Introduction: Revisiting the Role of State-Owned Enterprises in Strategic Sectors

ABSTRACT A few years after the fall of the Berlin wall, the World Bank published Bureaucrats in Business, an influential report on State-Owned Enterprises (SOEs) that provided a road-map on how to reform - or privatize - those “loss making state-owned-enterprises that are a significant burden on government budgets and […] hinder growth, impede market liberalization and thus both directly and indirectly limit efforts to reduce poverty” (World Bank, 1995, p. ix). Some 25 years later SOEs are still pervasive. This special issue follows up on Bureaucrats in Business, and sheds light on the continued important phenomena of SOEs and attempts to understand what the perception is about the role that SOEs should play both in tranquil and in turbulent times. We firstly set out an overview of the presence of SOEs over time and across sectors and country groups). Because the topic of the role SOEs should play in the economy is influenced by politics, second, we summarize the results of a Delphi study that presents new consensus on SOEs according to experts. Third, we then review the linkages between ownership and performance in the infrastructure and financial sectors. Fourth, we shed light on the new phenomenon of SOEs abroad, and then conclude.

XALQARO INVESTITSIYA HUQUQIY REJIMIDA DAVLAT KORXONALARINING ROLI

In response to the COVID-19 crisis, governments have taken a wide range of measures to support the business sector. Despite the rise of international investment treaties and the adoption of liberalizing measures by national governments, many states are taking a more cautious and restrictive approach to regulate international investments. In some cases, rescue packages include the acquisition of equity stakes in companies in financial distress, potentially increasing the number and presence of State-owned enterprises in the economy. Especially, in post-socialist countries, state-owned enterprises still play an important role in the economy; however, their activities are concentrated in domestic markets. The discussion of whether the host country’s regulatory measures for foreign public investment are transparent in terms of the use of exceptions to the contract stems from the fact that the restrictive measures relating to the organization or post-establishment of foreign state investments. Such restrictive measures typically apply to the entry of foreign public investment into the market, especially in critical infrastructure and “strategic” industries. The aim of this article is to present the general nature of state-owned enterprises and analyze the regulatory measures taken by some countries.

Конкурентна політика держави: проблеми реалізації та рекомендації щодо удосконалення

Обґрунтовано суть, принципи і особливості конкурентної політики. На основі аналізу звітності Західного Міжобласного територіального відділення Антимонопольного комітету України визначено головні проблеми реалізації конкурентної політики в умовах сучасних соціально-економічних викликів. Визначено головні напрямки удосконалення конкурентної політики, спрямовані на розвиток конкуренції, демонополізацію потенційно конкурентних та монопольних ринків.

The impact of state-owned enterprises on the employment growth of manufacturing in Chinese cities: Evidence from economic census microdata

This article utilises economic census microdata to examine the impact of state-owned enterprises (SOEs) on the employment growth of manufacturing industries in Chinese cities between 2004 and 2008. The main findings show that the presence of SOEs inhibits employment growth in the manufacturing industry. Using the historical landscape of SOEs as an instrumental variable, our findings underscore that the overall impact of SOEs remains negative. This study then explores three potential mechanisms underlying this negative relationship. First, SOEs appear to have no significant impact on knowledge spillovers in their own industry. Second, SOEs tend to hinder the entry of new privately-owned enterprises (POEs) into the marketplace. Third, SOEs are generally less productive than POEs. The article also provides new evidence about dynamic externalities theory: the employment growth rate of manufacturing industries is higher in cities, with a substantial number of rivals in their own industry.

Globalization and state capitalism: Assessing Vietnam's accession to the WTO

What do state-owned enterprises (SOEs) do? How do they respond to market incentives? Can we expect substantial efficiency gains from trade liberalization in economies with a strong presence of SOEs? Using a new dataset of Vietnamese firms we document a set of empirical regularities distinguishing SOEs from private firms. Then we empirically study the effect of the 2007 WTO accession on selection, competition, and productivity. Our results show that WTO entry is associated with higher probability of exit, lower firm profitability, and substantial increases in productivity for private firms but not for SOEs. Our estimates suggest that the overall productivity gains would have been about 40% larger in a counterfactual Vietnamese economy without SOEs. We highlight some economic mechanisms possibly driving these findings through the lenses of a model of trade with heterogeneous private and state-owned firms. The model suggests that political/regulatory barriers to entry and access to credit are key drivers of the different response of SOEs to trade liberalization. Further empirical tests broadly validate these insights.

Pushing on a string: State-owned enterprises and monetary policy transmission in China

This paper studies whether monetary transmission in China is asymmetric. While researchers have found an asymmetric transmission in the US and other economies, China offers a specific rationale for asymmetries: the presence of state-owned enterprises (SOEs) with preferential access to financing. To study the consequences of SOEs for monetary policy transmission, we differentiate between expansionary and restrictive policy shocks and argue that SOEs generally suffer less from a policy tightening and benefit more from a policy easing. Based on sector-specific macroeconomic time series and a large firm-level data set, we provide evidence of a systematic and sizeable asymmetry in the transmission of monetary policy shocks in China. The nature of the asymmetry is consistent with the notion of explicit or implicit government guarantees of SOEs and has consequences for the adjustment of aggregate variables. In contrast to other central banks, the People's Bank of China seems able to “push on a string”.

Pushing on a String: State-Owned Enterprises and Monetary Policy Transmission in China

This paper studies whether monetary transmission in China is asymmetric. While researchers found an asymmetric transmission in the US and other economies, China offers a specific rationale for asymmetries: the presence of state-owned enterprises (SOEs) enjoying preferential access to financing. To study the consequences of SOEs for policy transmission, we differentiate between expansionary and restrictive policy shocks and argue that SOEs should suffer less from a policy tightening and benefit more from a policy easing. Based on sector-specific macroeconomic time series and a large firm-level data set, we provide evidence of a systematic and sizeable asymmetry in the transmission of monetary policy shocks in China. The nature of the asymmetry is consistent with the notion of explicit or implicit government guarantees of SOEs and has consequences for the adjustment of aggregate variables. In contrast to other central banks, the People’s Bank of China seems to be able to “push on a string”.

The economic performance of state-owned enterprises in Central and Eastern Europe

This article explores the economic performance of state ownership in the largest non-financial enterprises operating in 13 post-socialist Central and Eastern European (CEE) countries over the period 2007–2013. The largest state-owned enterprises (SOEs) are selected based on the ‘Coface – 500 Top Companies in CEE’ list in 2013. Of these 500 enterprises, 69 were identified as state-owned. All originated in the socialist period. The majority of them are from Poland and Ukraine. SOEs hold a dominant position in energy supply, the oil and gas sector, and transport. We find that the persistence of state ownership in post-socialist countries is caused by incomplete privatisation and the presence of SOEs within strategic sectors. The economic performance of the largest state-owned companies is, on average, comparable to their private counterparts.

Globalization and State Capitalism: Assessing Vietnam's Accession to the WTO

What do state-owned enterprises (SOEs) do? How do they respond to market incentives? Can we expect substantial efficiency gains from trade liberalization in economies with a strong presence of SOEs? Using a new dataset of Vietnamese firms we document a set of empirical regularities distinguishing SOEs from private firms. We embed some of these features characterizing SOEs operations in a model of trade with firm heterogeneity and show that they can hinder the selection effects of openness and tame the aggregate productivity gains from trade. We empirically test these predictions analyzing the response of Vietnamese firms to the 2007 WTO accession. Our result show that WTO accession is associated with higher probability of exit, lower markups, and substantial increases in productivity for private firms but not for SOEs. Domestic barriers to entry and preferential access to credit are key drivers of the different response of SOEs to trade liberalization. Our estimates suggest that the overall productivity gains would have been about 66% larger in a counterfactual Vietnamese economy without SOEs.

Remote markets as shelters for local distortions: Evidence from China

We study how the presence of state-owned enterprises (SOEs) distorts private firms' decision on interprovincial sales in China. Using data from World Bank Investment Climate Survey and Annual Survey of Manufacturing Firms in China, we find evidence that the prevalence of SOEs in a city-industry where private firms reside will affect these firms' decision on the allocation of sales between interprovincial markets versus adjacent market. The direction of the effect on private firms, however, depends crucially on the private firms' access to credit. Specifically, the prevalence of SOEs leads to a higher propensity to sell to remote markets for firms with adequate financial access, whereas the opposite is true for firms who are credit constrained. We build a parsimonious model which links political/market distortion, market access, and credit constraint to explain these patterns, and argue that remote markets can serve as shelters for local distortions resulted from SOEs presence for some private firms.

Spatial proximity and location dynamics of knowledge-intensive business service in the Pearl River Delta, China

Western studies on location dynamics of knowledge-intensive business services (KIBS) suggest that KIBS firms tend to locate proximally to multinational enterprises and already established KIBS firms. This paper examines the location dynamics of KIBS firms in the Pearl River Delta (PRD) of China, one of the manufacturing centers and fastest-growing global mega-city regions in the world. This study reveals that KIBS in the PRD have become more spatially concentrated from 2004 to 2008. Both state-owned enterprises (SOEs) and foreign-owned enterprises (FOEs), two dominant players in the regional economy, play a positive role in attracting KIBS-births. This indicates that the presence of SOEs and FOEs has significantly shaped the location patterns of KIBS firms in the PRD, and the influence of SOEs is even stronger than that of the FOEs. Moreover, the new KIBS firms tend to co-locate with existing KIBS firms, which confirms that the cumulative causation mechanism matters in new KIBS firm formation process in the PRD. Other contextual factors, such as the state-governed developing zones (DZs), also have positive effects on KIBS-births. These findings suggest that more attention should be paid to the role of the state in restructuring the economic landscape of China where a mature market economy system is still lacking, although there are increasing signs of the influence of global firms.

Consumer benefits of reforming a state-dominated industry

The presence of state-owned enterprises (SOEs) in an industry where private firms operate poses a concern over fair competition. This paper estimates the improvement in consumer welfare from eliminating the SOE’s privileges awarded by state-ownership and regulation. The empirical framework is based on a random coefficient discrete choice model and yields an economically interpretable welfare measure in a differentiated product market. Utilizing data on the Korean cigarette manufacturing industry that recently underwent privatization and deregulation, the estimated model shows a significant increase in consumer surplus. This improvement is ascribed to firms’ better alignment of product lines with consumer preferences, to expanded consumer choice, and to a limited rise in prices. The results, however, raise a distributional concern as the gains mostly fall on consumers of mid- and high-price brands.

Ownership and Energy Efficiency in Indonesian Manufacturing

Using 1996 and 2006 census data on medium-large plants in Indonesian manufacturing, we examine whether foreign multinational enterprises (MNEs) and stateowned enterprises (SOEs) used purchased energy more efficiently than local, private plants, finding that the correlation between plant ownership and total energy intensity, gas intensity, and coal intensity was generally weak in both years. Second, we ask whether energy efficiency in private plants was affected by the presence of MNEs or SOEs in high-energy-consuming industries. In 1996, private energy intensities were often positively correlated with the presence of SOEs and majorityforeign MNEs and negatively correlated with the presence of wholly foreign or minority-foreign MNEs, but in 2006 the corresponding results differed substantially. This suggests that ownership-related differentials in energy intensity and intra-industry energy-intensity spillovers are not pronounced. If policymakers are concerned with improving energy efficiency in Indonesian manufacturing, plant ownership should not be a major consideration.

Foreign Direct Investment and the Survival of Domestic Private Firms in Viet Nam

Foreign direct investment (FDI) may benefit local firms in the host country through various kinds of spillovers, but it may also raise competition and result in the crowding out of domestic firms. Using detailed firm-level data for the period 2001–2008, this paper examines the aggregate effect of FDI on the survival of domestic private firms in Viet Nam. We estimate the impact of both horizontal and vertical FDI and explore how the presence of state-owned enterprises (SOEs) influences the exit hazard for private firms. The results suggest that horizontal and upstream FDI raise the exit hazard significantly, while downstream FDI may reduce the hazard. The presence of SOEs has a direct negative effect on the survival odds of local private firms in the same industry, but there is also an indirect impact on the exit hazard from FDI. Local firms are more vulnerable to foreign entry in sectors with high SOE shares. Looking at the net effects of FDI during the period 2001–2008, we find that results vary between sectors and over time but that the overall impact has been surprising small. The paper also discusses policy conclusions and implications for empirical analyses of spillovers from FDI.

Revisiting the Firm Ownership and Performance Debate in an Emerging Economy during Economic Reforms

Neoliberal scholars have attributed the inefficiency of state owned enterprises (SOEs) on ineffective monitoring arrangements in weak institutional environments and predicted their ultimate demise. But continued and significant presence of SOEs in emerging economies like India, even after two decades of economic reforms has provoked us to revisit the ownership performance debate. We study the effect of ownership and reforms on the performance of the entire population of firms in India over a twenty year period. Since, India has significant presence of business group affiliated firms and subsidiaries of MNCs and business groups tend to create internal markets and MNCs resort to internalization to compensate for the weak institutional environment, we have adopted finer grained classification of privately owned firms. We find that the state owned enterprises have not only turned around but have been outperforming firms from other ownership categories on certain parameters. We argue that firms in an emerging economy like India do not suffer from a lack of monitoring arrangements because of the so called ‘weak institutional environment’. It is likely that the institutions that are more relevant and influential in this context are rooted in the social structures, and perhaps not so much the traditional legal and economic institutions prevalent in developed economies. Hence the reform process has merely helped in opening up more opportunities for some categories of firms, thereby impacting performance.

Financial underdevelopment, distorted lending and export market survival

This paper examines the impact of financial development on exporter survival in foreign markets with Chinese firm-level data over the period 1998–2008. We measure financial development using the size, lending efficiency, term structure of bank loans and degree of state intervention in financial resource allocation, respectively. We find that a larger scale and greater efficiency of bank lending and less state intervention facilitate while the relative abundance of long-term credit deteriorates exporter survival. These effects are more pronounced for private exporters compared with state-owned exporters. For foreign-invested exporters, weakened state intervention is of relatively great importance. We attribute this disproportional impact to the government's intervention in funding investment and the distortional lending of banks, which varies across regions and industries with different levels of presence of state-owned enterprises.

The Unintended Consequences of State Ownership: The Brazilian Experience

Despite waves of privatization around the world, state ownership of enterprise remains significant. The focus of scholars and policymakers has accordingly shifted from the defense and promotion of privatization to the design and improvement of corporate governance practices in state-owned enterprises (SOEs). A broad consensus has emerged suggesting that state-owned firms should be corporatized, publicly traded and subject to the greatest extent possible to the same legal regime applicable to private firms. However, by focusing exclusively on what corporate and securities laws can do to increase the efficiency of state enterprise, this view ignores the other side of the problem: How does the presence of SOEs affect the efficiency of corporate and securities laws as they apply to private firms? Brazil’s long historical experience with SOEs suggests that state ownership of listed firms can have unintended consequences that go beyond the potential firm mismanagement if the state pursues political goals inconsistent with shareholder wealth maximization. The state’s financial interest as the controlling shareholder of listed firms can lead it to disfavor legal reforms that improve minority shareholder rights, thus impairing the ability of private firms to raise outside financing. In ignoring the conflicts of interest inherent in the state’s dual role as shareholder and regulator, the conventional wisdom has likely overestimated the aggregate benefits of a unitary corporate law regime for both state-owned and private firms.

Introducing regulation in the measurement of efficiency, with an application to the Canadian air carriers industry

Abstract This paper proposes a method to measure efficiency in highly regulated capital-intensive industries in the presence of state-owned enterprises. We generalize the data envelopment analysis method to include regulation in the model, as well as the quasi-fixed nature of capital and its links with the firms’ investment decisions. The framework is then applied to the Canadian air carriers industry to study the impact of regulation changes on the efficiency of the various carriers, between 1960 and 1999. Our results show that deregulation explains a large part of the measured inefficiency.

Determinants of economic growth in China: Private enterprise, education, and openness

This essay investigates the source of cross-provincial variations of economic growth in China. A statistical analysis of data on 29 provinces, municipalities, and autonomous regions from 1978 through 1989 confirms the findings in the literature of empirical studies of economic growth based upon cross-country empirical analyses, and uncovers some characteristics unique to China. We find that private and semi-private enterprises, higher education and international trade all lead to an increase in economic growth in China. We also find that high fertility, high inflation, and the presence of state-owned enterprises (SOE) reduce growth rates among the provinces. Finally, our evidence indicates that the convergence hypothesis holds in China.