How Does Government Ownership Affect Firm Performance? Evidence from China's Privatization Experience

27 Pages Posted: 25 Apr 2002

See all articles by Qian Sun

Qian Sun

Fudan University

Jing Tong

Singapore Exchange Ltd.

Wilson H.S. Tong

Hong Kong Polytechnic University - School of Accounting and Finance; Hong Kong University of Science & Technology (HKUST) - Department of Finance

Abstract

The effect of government ownership on firm performance remains a controversial issue, especially in a transitional economy like China. Government ownership is typically viewed as adversely affecting firm performance. This study of that of Mainland China's privatization experience indicates the opposite. No matter whether it is in the form of state ownership or legal person ownership, government ownership has a positive impact on partially privatized state-owned enterprises. However, this relationship is nonlinear and shows an inverted U-shape. Given the situation of highly indebted, non-performing state-owned enterprises, we argue that too much government control is indeed bad for enterprises. But too little government ownership may not be good either. It might mean a lack of the government's political support and business connections, which are valuable and necessary to vitalize performance.

Suggested Citation

Sun, Qian and Tong, Jing and Tong, Wilson H.S., How Does Government Ownership Affect Firm Performance? Evidence from China's Privatization Experience. Available at SSRN: https://ssrn.com/abstract=309106

Qian Sun (Contact Author)

Fudan University ( email )

No. 670, Guoshun Road
No.670 Guoshun Road
Shanghai, 200433
China
86 21 25011094 (Phone)

Jing Tong

Singapore Exchange Ltd.

2 Shenton Way
#19-00 SGX Centre 1
Singapore 068804
Singapore

Wilson H.S. Tong

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong
852-2358-7679 (Phone)
852-2358-1749 (Fax)

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