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

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Author Info
David D. Li
Changqi Wu

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

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

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

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References listed on IDEAS
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.:
  1. John McMillan, 1993. "Autonomy and Incentives in Chinese State Enterprises," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich.
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  2. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September. [Downloadable!] (restricted)
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  3. Lin, Justin Yifu & Cai, Fang & Li, Zhou, 1998. "Competition, Policy Burdens, and State-Owned Enterprise Reform," American Economic Review, American Economic Association, vol. 88(2), pages 422-27, May. [Downloadable!] (restricted)
  4. Barberis, Nicholas & Maxim Boycko & Andrei Shleifer & Natalia Tsukanova, 1996. "How Does Privatization Work? Evidence from the Russian Shops," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 764-90, August. [Downloadable!] (restricted)
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  5. Groves, Theodore & Yongmiao Hong & John McMillan & Barry Naughton, 1995. "China's Evolving Managerial Labor Market," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 873-92, August. [Downloadable!] (restricted)
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  6. Groves, Theodore, et al, 1994. "Autonomy and Incentives in Chinese State Enterprises," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 183-209, February. [Downloadable!] (restricted)
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  7. Shleifer, Andrei & Vishny, Robert W, 1994. "Politicians and Firms," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 995-1025, November. [Downloadable!] (restricted)
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Cited by:
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  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 2003-564, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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