State Ownership Reinvented? Explaining Performance Differences between State‐Owned and Private Firms

18 Pages Posted: 27 Jul 2018

See all articles by Sergio G. Lazzarini

Sergio G. Lazzarini

Insper Institute of Education and Research

Aldo Musacchio

Brandeis University- International Business School; National Bureau of Economic Research

Date Written: July 2018

Abstract

Manuscript Type. Empirical. Research Question/Issue. This study aims to understand the implications of the corporate governance arrangements in state‐owned enterprises (SOEs) that are publicly listed in terms of firm performance relative to that of private firms. Research Findings/Insights. Using a new database of 477 large, listed SOEs observed between 1997 and 2012 in 66 developed and emerging countries, we use matching techniques to show that these firms do not underperform similar private firms, except when the former face shocks that prioritize their social and political objectives, such as during severe recessions. These findings demonstrate the need to revise existing theories of SOE underperformance. Theoretical/Academic Implications. We expand the traditional agency view of SOEs by introducing principal–principal conflicts that prevail in publicly traded firms. We argue that governments try to steer SOEs to pursue social and political objectives, which can lead to inefficiencies, but they also provide them rents and protection, factors that should lead them to perform as well or better than similar private firms. Thus, our theory of state ownership argues that their advantage or disadvantage over similar private firms cannot be identified from the theory and thus needs an empirical test. Practitioner/Policy Implications. We modify the simplistic view that SOEs are inefficient and highlight that SOEs that compete with private firms may have advantages that give them a competitive edge. This has implications not only for firm‐level strategy, but also for competition policy worldwide.

Keywords: Corporate Governance, National Privatization, National‐Level Governance Outcomes, Ownership Mechanisms, State‐Owned Enterprise (SOE)

Suggested Citation

Lazzarini, Sergio G. and Musacchio, Aldo, State Ownership Reinvented? Explaining Performance Differences between State‐Owned and Private Firms (July 2018). Corporate Governance: An International Review, Vol. 26, Issue 4, pp. 255-272, 2018. Available at SSRN: https://ssrn.com/abstract=3218678 or http://dx.doi.org/10.1111/corg.12239

Sergio G. Lazzarini (Contact Author)

Insper Institute of Education and Research

R Quata 300
Sao Paulo, 04542-030
Brazil

Aldo Musacchio

Brandeis University- International Business School ( email )

415 South Street MC 32
Waltham, MA 02454-9110
United States

National Bureau of Economic Research ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/people/aldo_musacchio

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