The Financial Premium and Real Cost of Bureaucrats in Businesses

This paper characterizes finance allocation distortions in capital markets across state-owned and private-owned enterprises. It does so by implementing Whited and Zhao’s (2021) methodology to infer idiosyncratic financial distortions on a novel firm-level database containing information on the ownership structure of firms operating in 24 European countries during 2010–16. The analysis finds that firms with public authorities as direct shareholders (state-owned enterprises) have subsidized access to debt and equity, compared to their private counterparts. The paper then quantifies the macroeconomic effects of removing state-owned firms and reallocating their financial resources toward the private sector. The findings show that although state-owned enterprises are on average subsidized relative to private firms, removal of state-owned enterprises from the market may lead to aggregate productivity losses of up to 40 percent due to their superior technical efficiency in some sectors. Targeted reforms that only shut down poorly performing state-owned enterprises lead to aggregate total factor productivity gains in every country, reaching up to 15 percent. Reforms that in addition remove distortions before reallocating the released resources toward more productive firms increase productivity up to 83.7 percent.

Bibliographic Details

Main Authors:	Cusolito, Ana P., Fattal Jaef, Roberto N., Patiño Peña, Fausto, Singh, Akshat V.
Format:	Working Paper biblioteca
Language:	English en_US
Published:	Washington, DC: World Bank 2024-09-26
Subjects:	SOES, STATE-OWNERSHIP DISTORTIONS, PRODUCTIVITY, FINANCE MISALLOCATION, DECENT WORK AND ECONOMIC GROWTH, SDG 8,
Online Access:	http://documents.worldbank.org/curated/en/099230409252414087/IDU172ace1fe1ee1a14ac619a86120a270c8e532 https://hdl.handle.net/10986/42205
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