Strategic State Ownership
60 Pages Posted: 27 Oct 2012 Last revised: 31 Aug 2017
Date Written: August 26, 2017
Abstract
Much existing work on SOEs portrays state ownership as suboptimal relative to private ownership and inevitably declining over time. By contrast, we argue that SOEs have become durable fixtures of the global economy as governments strategically smooth firm performance in economically important enterprises via changes to their ownership positions. We test our hypotheses with a new dataset spanning 16 years and 9 East Asian economies, totaling 2,984 firm-year observations. Our findings show that firm underperformance leads to an increase in state ownership, which in turn improves performance, and is followed by the state reducing its ownership stake. We argue this behavior stems from the desire of incumbent leaders to prevent economic problems from becoming political problems that could threaten their rule.
Keywords: government ownership, firm performance, direct ownership, indirect ownership, politics
JEL Classification: G01, G34, G38, H11, H12
Suggested Citation: Suggested Citation
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