The Most Important Concepts in Finance
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The Most Important Concepts in Finance

Edited by Benton E. Gup

Anyone trying to understand finance has to contend with the evolving and dynamic nature of the topic. Changes in economic conditions, regulations, technology, competition, globalization, and other factors regularly impact the development of the field, but certain essential concepts remain key to a good understanding. This book provides insights about the most important concepts in finance.
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Chapter 6: Who’s winning the big match? Surveying state versus private ownerships effect on corporate value and policy

Scott B. Guernsey and William L. Megginson

Extract

How does state versus private ownership affect corporate value, efficiency, and other key policy decisions? Prior work finds that firms with majority government-control are less efficient and less profitable than otherwise-comparable privately owned firms (for example, Megginson and Netter 2001; Gupta et al. 2001; Shirley and Walsh 2001; Djankov and Murrell 2002; and Megginson 2005a, among others). Yet, state ownership as a form of corporate organization continues to survive, and, in more recent years, thrive; this is especially true for enterprises headquartered in countries like China, Russia, and Brazil. Further, proponents of state capitalism have become more boisterous, citing its merits over free-market economies during times of severe duress and uncertainty, as witnessed during the 2008 global financial crisis. Thus, while it is well recognized in the extant literature that state ownership and its impact on corporate value, relative efficiency, and policy decision making prior to 2004 was sub-optimal compared with private ownership, it is less clear if this relation still holds. Hence, we survey recent academic papers and ask the question: which form of ownership is currently “winning the big match?” From a theoretical perspective, the effect of state ownership on value, efficiency, and other important policy decisions is ambiguous.

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