Premium
How Does Government Ownership Affect Firm Performance? Evidence from China’s Privatization Experience
Author(s) -
Sun Qian,
Tong Wilson H. S.,
Tong Jing
Publication year - 2002
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/1468-5957.00422
Subject(s) - state ownership , government (linguistics) , china , business , affect (linguistics) , politics , state (computer science) , mainland china , market economy , control (management) , rent seeking , economics , emerging markets , finance , political science , management , law , linguistics , philosophy , algorithm , computer science
The effect of government ownership on firm performance remains a controversial issue, especially in a transitional economy like China. Government ownership is typically viewed as adversely affecting firm performance. This study of that of Mainland China’s privatization experience indicates the opposite. No matter whether it is in the form of state ownership or legal person ownership, government ownership has a positive impact on partially privatized state‐owned enterprises. However, this relationship is nonlinear and shows an inverted U‐shape. Given the situation of highly indebted, non‐performing state‐owned enterprises, we argue that too much government control is indeed bad for enterprises. But too little government ownership may not be good either. It might mean a lack of the government’s political support and business connections, which are valuable and necessary to vitalize performance.