Honor Thy Creditors Beforan Thy Shareholders: Are the Profits of Chinese State-Owned Enterprises Real?
AbstractThe Chinese state owned enterprises (SOEs) have become quite profitable recently. As the largest shareholder, the state has not asked SOEs to pay dividends in the past. Therefore, some have suggested that the state should ask SOEs to pay dividends. Indeed, the Chinese government has adopted this policy advice and started to demand dividend payment starting from 2008. While we do not question the soundness of the dividend policy, the point we raise is whether those profits are real if all costs owned by SOEs are properly accounted for. Among other things, we are interested in investigating whether the profits of SOEs would still be as large as they claim if they were to pay a market interest rate. Using a representative sample of corporate China, we find that the costs of financing for SOEs are significantly lower than for other companies after controlling for some fundamental factors for profitability and individual firm characteristics. In addition, our estimates show that if SOEs were to pay a market interest rate, their existing profits would be entirely wiped out. Our findings suggest that SOEs are still benefiting from credit subsidies and they are not yet subject to the market interest rates. In an environment where credit rights are not fully respected, dividend policy, though important, should come second and not first.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 162009.
Length: 27 pages
Date of creation: Apr 2009
Date of revision:
Contact details of provider:
Postal: 55th Floor , Two International Finance Centre , 8 Finance Street , Central, Hong Kong
Phone: (852)2878 1978
Fax: (852)2878 7006
Web page: http://www.hkimr.org
More information through EDIRC
State Owned Enterprises; Soft Budget Constraint; Dividend Policy;
Other versions of this item:
- Giovanni Ferri & Li-Gang Liu, 2010. "Honor Thy Creditors Beforan Thy Shareholders: Are the Profits of Chinese State-Owned Enterprises Real?," Asian Economic Papers, MIT Press, vol. 9(3), pages 50-71, October.
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Chong-En Bai & Jiangyong Lu & Zhigang Tao, 2006. "The Multitask Theory of State Enterprise Reform: Empirical Evidence from China," American Economic Review, American Economic Association, vol. 96(2), pages 353-357, May.
- Cull, Robert & Xu, Lixin Colin, 2003. "Who gets credit? The behavior of bureaucrats and state banks in allocating credit to Chinese state-owned enterprises," Journal of Development Economics, Elsevier, vol. 71(2), pages 533-559, August.
- Loren Brandt & Hongbin Li, 2002.
"Bank Discrimination in Transition Economies: Ideology, Information or Incentives?,"
William Davidson Institute Working Papers Series
517, William Davidson Institute at the University of Michigan.
- Brandt, Loren & Li, Hongbin, 2003. "Bank discrimination in transition economies: ideology, information, or incentives?," Journal of Comparative Economics, Elsevier, vol. 31(3), pages 387-413, September.
- Cull, Robert & Xu, Lixin Colin, 2000. "Bureaucrats, State Banks, and the Efficiency of Credit Allocation: The Experience of Chinese State-Owned Enterprises," Journal of Comparative Economics, Elsevier, vol. 28(1), pages 1-31, March.
- Dennis Tao Yang & Junsen Zhang & Shaojie Zhou, 2012.
"Why Are Saving Rates So High in China?,"
in: Capitalizing China, pages 249-278
National Bureau of Economic Research, Inc.
- Yang, Dennis T. & Zhang, Junsen & Zhou, Shaojie, 2011. "Why Are Saving Rates So High in China?," IZA Discussion Papers 5465, Institute for the Study of Labor (IZA).
- Dennis Tao Yang & Junsen Zhang & Shaojie Zhou, 2010. "Why are Saving Rates so High in China?," Working Papers 312010, Hong Kong Institute for Monetary Research.
- Dennis Tao Yang & Junsen Zhang & Shaojie Zhou, 2011. "Why Are Saving Rates so High in China?," NBER Working Papers 16771, National Bureau of Economic Research, Inc.
- Lin, Justin Yifu & Treichel, Volker, 2012. "The unexpected global financial crisis : researching its root cause," Policy Research Working Paper Series 5937, The World Bank.
- Yang, Dennis T., 2012.
"Aggregate Savings and External Imbalances in China,"
IZA Discussion Papers
6964, Institute for the Study of Labor (IZA).
- Dennis Tao Yang, 2012. "Aggregate Savings and External Imbalances in China," Journal of Economic Perspectives, American Economic Association, vol. 26(4), pages 125-46, Fall.
- Lee, Jongchul, 2013. "Income Inequality In Urban China And The Role Of State Sector," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 54(2), pages 159-176, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (HKIMR).
If references are entirely missing, you can add them using this form.