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Do China's State‐Owned Enterprises Maximize Profit?

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  • CHONGWOO CHOE
  • XIANGKANG YIN

Abstract

China's state enterprise reform is often believed to have made profit the most important goal of SOEs. Nonetheless the poor performance of SOEs relative to other forms of enterprises remains puzzling. We offer an explanation based on the incentive aspect of the reform, which complements the theory based on a soft budget constraint. Under certainty, the incentives of enterprise managers to maximize their own compensation are consistent with profit maximization with or without a soft budget constraint. Under uncertainty, however, the managers' incentives generally deviate from expected profit maximization. This deviation is dampened by, but still exists even without a soft budget constraint.

Suggested Citation

  • Chongwoo Choe & Xiangkang Yin, 2000. "Do China's State‐Owned Enterprises Maximize Profit?," The Economic Record, The Economic Society of Australia, vol. 76(234), pages 273-284, September.
    • Handle: RePEc:bla:ecorec:v:76:y:2000:i:234:p:273-284
    DOI: 10.1111/j.1475-4932.2000.tb00023.x
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    2. Bajona, Claustre & Kelly, David L., 2012. "Trade and the environment with pre-existing subsidies: A dynamic general equilibrium analysis," Journal of Environmental Economics and Management, Elsevier, vol. 64(2), pages 253-278.

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