Firm Ownership, Quality of Government and Innovation

Despite the wave of privatisation in recent decades, enterprises under government control still account for a large part of assets and employment in several countries and particularly continue to play a key role in certain network industries. We explore the potential role of State-Invested Enterprises (SIEs) as investors in innovation, with particular interest in that played by the institutional environment. We focus on the telecommunication industry, which has been affected by fundamental technological and organisation change, including liberalisation and privatisation, over the last decades but where public ownership still retains a major role. We draw on a longitudinal data set of 707 telecom companies from 85 countries over the 2007-2015 period and show that public ownership is positively correlated to innovation activity. We also find that - for both state-invested and private companies -improvements in institutional quality are positively associated with firm-level innovation, and that such a relation is stronger under public ownership. We offer an interpretation of these findings which shed new light on the role of SIEs as patient investors.