What Happens When the State Is Bossing around Markets? An Analysis of the Performance Differentials between Businesses of the State (BOS) and Private-Owned Enterprises (POEs)
This paper studies the performance differentials between privately-owned enterprises and businesses of the state. Businesses of the State (BOS) are firms with 10 percent or more direct or indirect state participation. By analyzing firm-level data across 16 European countries between 2011 and 2020, the paper finds evidence that state ownership matters for operational and financial performance and sheds light on how and when it matters. The analysis disentangles the multiple forms of state participation and its effects on firms’ performance by exploring the heterogeneity across sector type, levels of state participation, and degree of separation (direct versus indirect shareholding). It also analyzes the early response of businesses of the state to the COVID-19 shock. The results suggest that businesses of the state underperform in terms of labor productivity, profitability, and return on investments, although the effects are heterogeneous depending on the level of state participation, degree of separation, and type of sector. Businesses of the state appear to be more financially leveraged vis-à-vis their private counterparts, suggesting potential soft budget constraints. Wider differentials in profitability and return on investments are evidenced when the state operates in fully competitive sectors that are viable for private participation, underscoring the opportunity costs of state ownership in those sectors. Furthermore, the findings show that mixed ownership with the private sector can drive better results when compared to fully owned businesses of the state. Similarly, a higher degree of separation from the state seems to improve performance, highlighting the role of corporate governance and ownership reforms to foster independence. Finally, businesses of the state demonstrated greater resilience in preserving jobs in the short term during the COVID-19 pandemic in 2020.
| Main Author: | |
|---|---|
| Format: | Working Paper biblioteca |
| Language: | English en_US |
| Published: |
Washington, DC: World Bank
2024-06-26
|
| Subjects: | STATE OWNERSHIPS ENTERPRISES (SOES), PUBLIC ENTERPRISES, STATE OWNERHIP, FIRM PERFORMANCE, COMPETITION, PRIVATE INVESTMENT, DECENT WORK AND ECONOMIC GROWTH, SDG 8, INDUSTRY, INNOVATION AND INFRASTRUCTURE, SDG 9, |
| Online Access: | http://documents.worldbank.org/curated/en/099123406252440384/IDU149dc671915bcb141051b0d4105d073392111 https://hdl.handle.net/10986/41784 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| Summary: | This paper studies the performance
differentials between privately-owned enterprises and
businesses of the state. Businesses of the State (BOS) are
firms with 10 percent or more direct or indirect state
participation. By analyzing firm-level data across 16
European countries between 2011 and 2020, the paper finds
evidence that state ownership matters for operational and
financial performance and sheds light on how and when it
matters. The analysis disentangles the multiple forms of
state participation and its effects on firms’ performance by
exploring the heterogeneity across sector type, levels of
state participation, and degree of separation (direct versus
indirect shareholding). It also analyzes the early response
of businesses of the state to the COVID-19 shock. The
results suggest that businesses of the state underperform in
terms of labor productivity, profitability, and return on
investments, although the effects are heterogeneous
depending on the level of state participation, degree of
separation, and type of sector. Businesses of the state
appear to be more financially leveraged vis-à-vis their
private counterparts, suggesting potential soft budget
constraints. Wider differentials in profitability and return
on investments are evidenced when the state operates in
fully competitive sectors that are viable for private
participation, underscoring the opportunity costs of state
ownership in those sectors. Furthermore, the findings show
that mixed ownership with the private sector can drive
better results when compared to fully owned businesses of
the state. Similarly, a higher degree of separation from the
state seems to improve performance, highlighting the role of
corporate governance and ownership reforms to foster
independence. Finally, businesses of the state demonstrated
greater resilience in preserving jobs in the short term
during the COVID-19 pandemic in 2020. |
|---|