State Ownership: A Blessing Kitty and a Worrying Lion

58 Pages Posted: 27 Feb 2021

See all articles by Jie Li

Jie Li

Central University of Finance and Economics (CUFE)

Naixin Zhang

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development

Date Written: December 31, 2020

Abstract

We provide firm-level evidence that a private firm may lower its financing costs by introducing a small (kitty) share of state ownership. However, if the state acquires the lion's share of the private firm, the firm may become inefficient. Therefore, the results show a non-linear relationship and an inverse U-shape between a firm's performance and its share of state ownership. Specifically, a firm with a small share of state ownership has better export performance than a pure private firm in financially more vulnerable sectors in China, but this superior performance deteriorates as the share of state ownership increases. These results are not driven by firm, sector, or time characteristics. This paper reconciles these findings with the fact that although a firm with state ownership is less liquidity constrained due to its low financing cost, while inefficiency, a frequent concomitant of state ownership, will eventually outweigh this credit advantage as the share of state ownership rises.

Keywords: Credit Constraints; State Ownership; Exports; China

JEL Classification: F1; G2

Suggested Citation

Li, Jie and Zhang, Naixin, State Ownership: A Blessing Kitty and a Worrying Lion (December 31, 2020). Available at SSRN: https://ssrn.com/abstract=3758010 or http://dx.doi.org/10.2139/ssrn.3758010

Jie Li (Contact Author)

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Naixin Zhang

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development ( email )

39 South College Road
Beijing
China

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