Do China's State‐Owned Enterprises Maximize Profit?

Chongwoo Choe and Xiangkang Yin

The Economic Record, 2000, vol. 76, issue 234, 273-284

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.

Date: 2000
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https://doi.org/10.1111/j.1475-4932.2000.tb00023.x

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Working Paper: Do China's State-Owned Enterprises Maximize Profit? (1998)
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