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

Nguyet Thi Minh Phi, Farhad Taghizadeh-Hesary (), Chuc Anh Tu, Naoyuki Yoshino () and Chul Ju Kim
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Nguyet Thi Minh Phi: Asian Development Bank Institute
Chuc Anh Tu: Asian Development Bank Institute
Chul Ju Kim: Asian Development Bank Institute

No 950, ADBI Working Papers from 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.

Keywords: performance; ownership; solvency; state-owned enterprises; private-owned enterprises (search for similar items in EconPapers)
JEL-codes: G32 G34 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2019-05-13
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-eff and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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