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Performance Differential Between Private and State-Owned Enterprises: An Analysis of Profitability and Leverage

Author

Listed:
  • Nguyet Thi Minh Phi

    (Asian Development Bank Institute)

  • Farhad Taghizadeh-Hesary

    (Asian Development Bank Institute)

  • Chuc Anh Tu

    (Asian Development Bank Institute)

  • Naoyuki Yoshino

    (Asian Development Bank Institute)

  • Chul Ju Kim

    (Asian Development Bank Institute)

Abstract

We investigate empirically the relationship between ownership identity and the performance of firms in terms of profitability and solvency. Using cross-sectional data covering over 25,000 firms worldwide and by employing various empirical methods, we find robust support for the inferior performance of government enterprises over privately owned firms. Specifically, state-owned enterprises (SOEs) tend to be less profitable than privately owned enterprises. However, they appear to be more dependent on debt for their financial needs and are, thus, better leveraged. Additionally, SOEs are more labor intensive and have higher labor costs. Thus, evidence from this study could be interpreted to mean that privatization could improve the performance of public firms. However, a study over a longer period is needed before these results can be considered conclusive.

Suggested Citation

  • Nguyet Thi Minh Phi & Farhad Taghizadeh-Hesary & Chuc Anh Tu & Naoyuki Yoshino & Chul Ju Kim, 2019. "Performance Differential Between Private and State-Owned Enterprises: An Analysis of Profitability and Leverage," ADBI Working Papers 950, Asian Development Bank Institute.
    • Handle: RePEc:ris:adbiwp:0950
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    References listed on IDEAS

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    Cited by:

    1. Keun Jung Lee, 2021. "The Effects of Privatization and Corporate Governance of SOEs in Transition Economies: The Case of Kazakhstan," ADB Institute Series on Development Economics, in: Farhad Taghizadeh-Hesary & Naoyuki Yoshino & Chul Ju Kim & Kunmin Kim (ed.), Reforming State-Owned Enterprises in Asia, chapter 0, pages 113-132, Springer.
    2. Wang, Hua & Liao, Lingtao & Wu, Ji (George), 2023. "Robot adoption and firm's capacity utilization: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).
    3. Sanchez Navarro,Dennis, 2024. "What Happens When the State Is Bossing around Markets ? An Analysis of the Performance Differentials between Businesses of the State (BOS) and Private-Owned Enterprises (POEs)," Policy Research Working Paper Series 10820, The World Bank.

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    More about this item

    Keywords

    performance; ownership; solvency; state-owned enterprises; private-owned enterprises;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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