State Capitalism vs. Private Enterprise
Alexander Ljungqvist (),
Donghua Chen,
Dequan Jiang,
Haitian Lu and
Mingming Zhou ()
No 20930, NBER Working Papers from National Bureau of Economic Research, Inc
Abstract:
We study the efficiency of capital allocations at state-controlled and privately owned business groups in China. Using highly granular data on within-group capital transfers, we document stark differences: while private groups allocate more capital to units with better investment opportunities, state groups do the opposite, especially when part of the “national team.” Minority shareholders in state owned enterprises suffer as a result. External monitoring by outside investors helps discipline state groups’ tendency to ignore investment opportunities. We trace capital allocation decisions to the objectives of the Chinese Communist Party, which incentivizes managers to maintain social stability. Consistent with the party’s policy preferences, capital allocations are used to prop up struggling employers in high-unemployment areas and when many young men enter the local labor market, but the interests of the party and of managers may be misaligned.
JEL-codes: G15 G31 G32 G34 P1 P31 (search for similar items in EconPapers)
Date: 2015-02
New Economics Papers: this item is included in nep-cna and nep-tra
Note: CF LE
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Citations: View citations in EconPapers (22)
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