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The Ownership School vs. the Management School of State Enterprise Reform: Evidence from China

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  • David D. Li
  • Changqi Wu

Abstract

There are two schools of thoughts on the important issue of reforming state-owned enterprises (SOEs). We call them the ownership school and the management school. The ownership school argues that the key to the reform is to diversify SOEs' ownership, including privatization, in order to eliminate government control of SOEs. The management school emphasizes the need to improve government's management of SOEs by, for example, granting SOE employees autonomy and profit incentives. Utilizing a data set of 680 SOEs in China, covering the period of 1980 to 1994, we test the relative effectiveness of these two kinds of reform measures. This is possible due to the fact that reform measures based on each of these two schools of thoughts were practised in China. Our results yield strong support for the ownership school while leaving very mixed evidence for the management school. Moreover, we find that the impact of ownership diversification was of the same order of magnitude on the economic performance of state enterprises as that of enhancing product market competition.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 435.

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Length: pages
Date of creation: 01 Jan 2002
Date of revision:
Handle: RePEc:wdi:papers:2002-435

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Keywords: State-Owned Enterprise; Privatization; Gradual Privatization; Managerial Reform; Enterprise Restructuring; Managerial Autonomy; and Managerial Incentives;

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  1. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, American Economic Association, vol. 84(4), pages 833-50, September.
  2. Nicolas Barberis & Maxin Boycho & Andrei Shleifer & Natalia Tsukanova, 1995. "How Does Privatization Work? Evidence from the Russian Shops," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1721, Harvard - Institute of Economic Research.
  3. Groves, Theodore, et al, 1994. "Autonomy and Incentives in Chinese State Enterprises," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(1), pages 183-209, February.
  4. Lin, Justin Yifu & Cai, Fang & Li, Zhou, 1998. "Competition, Policy Burdens, and State-Owned Enterprise Reform," American Economic Review, American Economic Association, American Economic Association, vol. 88(2), pages 422-27, May.
  5. Shleifer, Andrei & Vishny, Robert W, 1994. "Politicians and Firms," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(4), pages 995-1025, November.
  6. Groves, Theodore & Yongmiao Hong & John McMillan & Barry Naughton, 1995. "China's Evolving Managerial Labor Market," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 103(4), pages 873-92, August.
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Cited by:
  1. Chong-En Bai & Qiao Liu & Joe Lu & Frank Song & Junxi Zhang, 2003. "Corporate Governance and Market Valuation in China," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 2003-564, William Davidson Institute at the University of Michigan.
  2. Unite, Angelo A. & Sullivan, Michael J. & Brookman, Jeffrey & Majadillas, Mary Anne & Taningco, Angelo, 2008. "Executive pay and firm performance in the Philippines," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 16(5), pages 606-623, November.

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