Competition, Ownership, Corporate Governance and Enterprise Performance: Evidence from China*

Abstract

There exist three views in the literature on the efficiency of state-owned versus private firms: competition, ownership, and governance. Each view emphasizes on one aspect while ignoring others. In this paper, we use a unique World Bank survey data of 736 Chinese firms across seven sectors and five cities from 1996 to 2001 to assess the relative importance of the above three views, both independently and jointly. It is found that when examined independently each determinant matters in explaining the efficiency of our sample firms; however, when they are jointly examined, ownership type and corporate governance are relatively more important, while the competition effect is less significant generally. We also find there is some degree of substitutability between two pairs: privatization and corporate governance, and privatization and competition. These results suggest that the three views are indeed incomplete, and a complete package requires some combination of these determinants. We also find that non-SOEs seem to have certain advantage in some governance mechanisms than SOEs and that market competition matters greatly for SOEs but not so much for non-SOEs. These results have important policy implications for China’s on-going privatization movement and her strive for better corporate governance and market competition.

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