Recent Developments in China, the US and Europe
Edited by Michael Faure and Xinzhu Zhang
Chapter 7: Regulation and Corporate Governance of State-owned Enterprises: Issues for Improved Efficiency and Competitiveness and Lessons for China
7. Regulation and corporate governance of state-owned enterprises: issues for improved efficiency and competitiveness and lessons for China* Luis Alberto Andrés, José Luis Guasch and Sebastián López Azumendi1 7.1 INTRODUCTION The efficient provision of infrastructure services is critical in the improvement of productivity, cost reductions and the competitiveness of any given country. In a market economy, where infrastructure services are mostly provided by private investors, governments have attempted to secure firms’ efficiency through competition policy and/or regulation. The selection of the appropriate instrument depends on the nature of the service provided; in other words, whether firms operate in a competitive or quasi-competitive environment or in the context of a legal or natural monopoly. Promoting efficiency in a competitive environment would require the use of antitrust policies. On the other hand, securing the efficiency of firms in a monopoly would require the use of regulation. In some occasions, a hybrid approach, combining both policies, would be also appropriate. When firms providing the service are state-owned enterprises (SOEs), there is conceptually an additional difficulty in securing their efficient operation. Both theory and practice indicate that their behavior, or response to the standard profit or sanction incentives, departs from that of private firms. SOEs do not fully appropriate the benefits of success or the consequences of failure. The theory also shows that the extent of SOEs’ performance, whether their compliance with the law or their efficient behavior, is somehow determined by their corporate governance structure and by an appropriate regulatory...
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