How Does Increased Private Ownership Affect Financial Leverage, Asset Quality and Profitability of Chinese SOEs?
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How Does Increased Private Ownership Affect Financial Leverage, Asset Quality and Profitability of Chinese SOEs? Lina Ma1 · Fengju Xu1 · Iqbal Najaf1 · Akther Taslima1 Received: 8 January 2020 / Accepted: 13 August 2020 © Fudan University 2020
Abstract This paper uses the “Chinese ownership reforms in 2013” as a natural experiment to test how increased private ownership affects financial leverage, asset quality and profitability of SOEs (state-owned enterprises). The PSM-DID model is conducted using the panel data of SOEs from 2010 to 2018. Results show that the increased private ownership can decrease financial leverage, while increase asset quality and profitability of SOEs. Specifically, it affects financial leverage negatively in the eastern and the central regions, promotes profitability in the eastern region, and the asset quality in the western region. Besides, the negative effect on financial leverage and positive effect on profitability in the competitive industry is much higher as compared to the monopoly industry. Furthermore, an increase in private ownership enhances asset quality in the monopoly industry more than the competitive industry. The study concludes the positive nexus between increased private ownership and corporate performance of SOEs which provides an insight for the Chinese government to further ownership reforms and for SOEs to improve financial performance. Keywords Chinese ownership reforms · Asset quality · Financial leverage · Profitability · PSM-DID model
* Lina Ma [email protected] Fengju Xu [email protected] Iqbal Najaf [email protected] Akther Taslima [email protected] 1
School of Management, Wuhan University of Technology, Hubei 430070, Wuhan, China
13
Vol.:(0123456789)
Chinese Political Science Review
1 Introduction In recent years, China has received extensive attention from other countries. Chinese SOEs face multiple tasks of political, administrative, and social stability nature. They are the material and political foundations of China’s modernization. However, compared with private firms, SOEs are notorious for their cumbersome administrative systems and hierarchy (Lockett 1988), resulting in poor financial performance and low efficiency. The insider control, loss of state assets, and the tunneling behavior are prominent problems faced by SOEs in China (Reported by Guidelines on deepening the SOEs reform issued by China’s State Council). Most of the SOEs are money-losing and some selected industries are sheltered by government bailouts (Bai et al. 2006). The Chinese ownership reforms come into play at the right moment. The ownership reforms were first proposed in the 1920 s which proposed the system of innovation that aimed at realizing ownership diversification and high productivity of SOEs. With increased market liberalization in the 1990 s, the competition from private sectors has increased and pressed the local governments to privatize SOEs (Cao et al. 1999; Tian 2001). This privatization has accelerated, since the government approved the restructu
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