Necessity of Developing a Comprehensive Evaluation Framework for State-owned enterprises

Farhad Taghizadeh-Hesary (), Naoyuki Yoshino (), Chul Ju Kim and Aline Mortha
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Chul Ju Kim: Asian Development Bank Institute

Chapter Chapter 10 in Reforming State-Owned Enterprises in Asia, 2021, pp 185-202 from Springer

Abstract: Abstract State-owned enterprises (SOEs) are usually thought to be in charge of increasing social welfare. At the same time, their relatively low performance poses several problems, including slowing down economic growth. Therefore, it is crucial for central governments to implement a comprehensive evaluation method to assess the performance of SOEs. Previous studies have offered many ways to evaluate their performance. By employing the principal component analysis technique and using data of 1148 SOEs, mostly from European countries, our study aims at providing a more comprehensive framework for assessing SOE performance that includes various factors. We selected five factors: profitability, per capita productivity, per capita costs, debt due days, and solvency. The results of our empirical study show that solvency, per capita costs, and per employee productivity have more deterministic power over the success or failure of SOEs, compared to profitability. While profit-making of SOEs is essential, focusing on profitability as the solve assessment criterion will mislead policymakers, keeping in mind that the nature of many SOEs is to generate social welfare and not profit. The chapter provides practical policy recommendations based on an empirical analysis.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:spr:adbchp:978-981-15-8574-6_10

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DOI: 10.1007/978-981-15-8574-6_10

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