Performance Differential Between Private and State-Owned Enterprises: An Analysis of Profitability and Leverage
Phi, Nguyet Thi Minh; Taghizadeh-Hesary, Farhad; Tu, Chuc Anh; Yoshino, Naoyuki; Kim, Chul Ju | May 2019
The purpose of this paper is to empirically investigate 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 private-owned enterprises. However, they appear to be more dependent on debt for their financial need 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.
CitationPhi, Nguyet Thi Minh; Taghizadeh-Hesary, Farhad; Tu, Chuc Anh; Yoshino, Naoyuki; Kim, Chul Ju. 2019. Performance Differential Between Private and State-Owned Enterprises: An Analysis of Profitability and Leverage. © Asian Development Bank Institute. http://hdl.handle.net/11540/10210.
Financial & Private Sector Development
Private Sector Investments
Private Sector Participation
Private Sector Projects
Public Sector Infrastructure
Public Sector Management
Public Sector Projects
Central local government relations
Decentralization in government
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Investment of public funds
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