A Comprehensive Evaluation Framework on the Economic Performance of State-Owned Enterprises

24 Pages Posted: 16 Oct 2019

See all articles by Farhad Taghizadeh-Hesary

Farhad Taghizadeh-Hesary

Waseda University

Naoyuki Yoshino

Asian Development Bank Institute

Chul Ju Kim

Asian Development Bank Institute

Aline Mortha

Keio University

Date Written: May 10, 2019

Abstract

State-owned enterprises (SOEs) play a key role in the economy of many countries. They are usually thought to be in charge of increasing social welfare. At the same time, their relatively low performance poses several problems, including slowing down economic growth, which is especially pronounced in countries where these firms represent a large share of the economy. Therefore, it is crucial for central governments to implement a comprehensive evaluation method to assess the performance of SOEs. By employing the principal component analysis technique and using data of 1,148 SOEs, mostly from European countries, we provide a more comprehensive framework for assessing SOE performance, which includes various factors: profitability, per capita productivity, per capita costs, debt due days, and solvency. The results of our empirical study show that solvency, per capita costs, and per employee productivity have more deterministic power over the success or failure of SOEs than profitability. Focusing on profitability as the sole assessment criterion will mislead policy makers, keeping in mind also that the nature of many SOEs is to generate social welfare and not profit.

Keywords: state-owned enterprises, SOEs, performance assessment, public economics

JEL Classification: H11, P11, L32

Suggested Citation

Taghizadeh-Hesary, Farhad and Yoshino, Naoyuki and Kim, Chul Ju and Mortha, Aline, A Comprehensive Evaluation Framework on the Economic Performance of State-Owned Enterprises (May 10, 2019). ADBI Working Paper 949, May 2019. Available at SSRN: https://ssrn.com/abstract=3470065 or http://dx.doi.org/10.2139/ssrn.3470065

Farhad Taghizadeh-Hesary (Contact Author)

Waseda University ( email )

1-104 Totsukamachi, Shinjuku-ku
tokyo, 169-8050
Japan

Naoyuki Yoshino

Asian Development Bank Institute ( email )

Kasumigaseki Building 8F
3-2-5, Kasumigaseki, Chiyoda-ku
Tokyo, 100-6008
Japan

Chul Ju Kim

Asian Development Bank Institute ( email )

Kasumigaseki Building 8F 3-2-5
Kasumigaseki, Chiyoda-ku
Tokyo, 100-6008
Japan

Aline Mortha

Keio University

2-15-45 Mita
Minato-ku
Tokyo, 108-8345
Japan

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