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Performance Differential between Private and State-owned Enterprises: An Analysis of Profitability and Solvency

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  • Nguyet Thi Minh Phi
  • Farhad Taghizadeh-Hesary
  • Chuc Anh Tu
  • Naoyuki Yoshino
  • Chul Ju Kim

Abstract

Motivated by the rise of state capitalism, the paper investigates 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 evidence that state-owned enterprises (SOEs) tend to be less profitable than private-owned enterprises. However, they appear to use debt for their financial need and are, thus, better leveraged. SOEs are also more labor-intensive and have higher labor costs. In addition, an improvement in institutional quality could benefit both SOEs and POEs. Thus, evidence from this study could be interpreted to mean that privatization could improve the performance of public firms; however, this process should come with several prior-privatization approaches. A study over a more extended period is needed before these results can be considered conclusive.

Suggested Citation

  • Nguyet Thi Minh Phi & Farhad Taghizadeh-Hesary & Chuc Anh Tu & Naoyuki Yoshino & Chul Ju Kim, 2021. "Performance Differential between Private and State-owned Enterprises: An Analysis of Profitability and Solvency," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 57(14), pages 3913-3928, November.
    • Handle: RePEc:mes:emfitr:v:57:y:2021:i:14:p:3913-3928
    DOI: 10.1080/1540496X.2020.1809375
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    Cited by:

    1. Zhi Li & Saijiao Zhou & Zuo Zhang, 2023. "The Location Choice and Survival of Polluting Firms under Environmental Regulation in Urban Agglomerations of China," Sustainability, MDPI, vol. 15(18), pages 1-20, September.
    2. Ritika JAIN & Vinoj ABRAHAM, 2024. "Preferential employment policies and firm performance: Evidence from Indian public sector enterprises," International Labour Review, International Labour Organization, vol. 163(1), pages 117-140, March.
    3. S. I. Dolgikh & B. S. Potanin, 2023. "The Impact of Public Administration on the Efficiency of Russian Firms," Studies on Russian Economic Development, Springer, vol. 34(1), pages 59-67, February.
    4. Coluccia, Benedetta & Barbieri, Roberta & Palmi, Pamela & Natale, Francesco, 2024. "Public ownership and ESG policies: implications for firm productivity in local transportation," Utilities Policy, Elsevier, vol. 89(C).
    5. Bae, Sung C. & Kwon, Taek Ho & Liu, Chenyang, 2024. "The impact of high-pressure political reforms on state-owned enterprises: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 91(C).
    6. Chee Loong Lee & Riayati Ahmad & Wing Shing Lee & Norlin Khalid & Zulkefly Abdul Karim, 2022. "The Financial Sustainability of State-Owned Enterprises in an Emerging Economy," Economies, MDPI, vol. 10(10), pages 1-13, September.

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