Do State-Owned Enterprises Have Worse Corporate Governance? An Empirical Study of Corporate Practices in China

A great deal of prior literature on corporate governance in China has asserted that state-owned enterprises (SOEs) are inefficiently run and badly governed—either worse than privately-owned enterprises (POEs) or just as bad. There is, however, no solid empirical evidence that underpins either claim. Using a unique, hand-coded dataset on corporate charter provisions with a random sample of nearly 300 publicly listed Chinese firms, this paper demonstrates that political hierarchy, state shareholding level, and political compliance are key factors in the governance and performance of Chinese SOEs. The corporate governance of SOEs that are firmly controlled by the Chinese central government favours minority shareholders, whereas that of SOEs firmly controlled by provincial governments appears to be less protective of them. Overall, SOEs, particularly those controlled by the central government, do not perform any worse than POEs, as measured by Tobin’s Q. Nonetheless, more politically compliant firms do perform worse.