How Does Increased Private Ownership Affect Financial Leverage, Asset Quality and Profitability of Chinese SOEs?

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.