Performance Differential Between Private and State-Owned Enterprises: An Analysis of Profitability and Leverage

23 Pages Posted: 16 Oct 2019

See all articles by Nguyet Thi Minh Phi

Nguyet Thi Minh Phi

Centre for Applied Economics and Business Research

Farhad Taghizadeh-Hesary

Waseda University

Anh Tu Chuc

Academy of Finance

Naoyuki Yoshino

Asian Development Bank Institute

Chul Ju Kim

Asian Development Bank Institute

Date Written: May 13, 2019

Abstract

We investigate empirically the relationship between ownership identity and the performance of firms in terms of profitability and solvency. Using cross-sectional data covering over 25,000 firms worldwide and by employing various empirical methods, we find robust support for the inferior performance of government enterprises over privately owned firms. Specifically, state-owned enterprises (SOEs) tend to be less profitable than privately owned enterprises. However, they appear to be more dependent on debt for their financial needs and are, thus, better leveraged. Additionally, SOEs are more labor intensive and have higher labor costs. Thus, evidence from this study could be interpreted to mean that privatization could improve the performance of public firms. However, a study over a longer period is needed before these results can be considered conclusive.

Keywords: performance, ownership, solvency, state-owned enterprises, private-owned enterprises

JEL Classification: G32, G34

Suggested Citation

Phi, Nguyet Thi Minh and Taghizadeh-Hesary, Farhad and Chuc, Anh Tu and Yoshino, Naoyuki and Kim, Chul Ju, Performance Differential Between Private and State-Owned Enterprises: An Analysis of Profitability and Leverage (May 13, 2019). ADBI Working Paper 950, May 2019. Available at SSRN: https://ssrn.com/abstract=3470070 or http://dx.doi.org/10.2139/ssrn.3470070

Nguyet Thi Minh Phi (Contact Author)

Centre for Applied Economics and Business Research

Hanoi
Vietnam

Farhad Taghizadeh-Hesary

Waseda University ( email )

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

Anh Tu Chuc

Academy of Finance

8 Phan Huy Chu
Phan Chu Trinh Street
Hanoi
Vietnam

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

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