Do State-Owned Enterprises Have Worse Corporate Governance? An Empirical Study of Corporate Practices in China
56 Pages Posted: 28 Jan 2018 Last revised: 21 Apr 2019
Date Written: June 21, 2018
Prior literature on corporate governance in China asserts that state-owned enterprises (SOEs) are inefficiently run and badly governed—they are either worse than privately owned enterprises (POEs) or as bad. There is, however, no solid empirical evidence that underpins either claim. Using a unique, hand-coded data set on corporate charter provisions in a random sample of nearly 300 publicly listed Chinese firms, we develop an additive corporate governance index. The index shows that the corporate governance of SOEs firmly controlled by the Chinese central government is more in favor of minority shareholders, whereas that of SOEs firmly controlled by provincial governments appears to be less protective of minority shareholders. Overall, SOEs, particularly those controlled by the central government, do not have worse firm performance than POEs, as measured by industry-adjusted Tobin’s Q. Nonetheless, firms that are more politically compliant with Communist Party policies have lower industry-adjusted Tobin’s Q. This paper demonstrates the nuanced differences among SOEs and their performance vis-à-vis POEs.
Keywords: State-owned enterprises (SOEs), corporate charters, firm value (Tobin’s Q), political compliance, corporate governance index, external financial dependence
JEL Classification: K22, G34
Suggested Citation: Suggested Citation