This paper characterizes finance allocation distortions in capital markets across state-owned and private-owned enterprises. It does so by implementing Whited and Zhao's (2021) methodology to infer idiosyncratic financial distortions on a novel firm-level database containing information on the ownership structure of firms operating in 24 European countries during 2010-16. The analysis finds that firms with public authorities as direct shareholders (state-owned enterprises) have subsidized access to debt and equity, compared to their private counterparts. The paper then quantifies the macroeconomic effects of removing state-owned firms and reallocating their financial resources toward the private sector. The findings show that although state-owned enterprises are on average subsidized relative to private firms, removal of state-owned enterprises from the market may lead to aggregate productivity losses of up to 40 percent due to their superior technical efficiency in some sectors. Targeted reforms that only shut down poorly performing state-owned enterprises lead to aggregate total factor productivity gains in every country, reaching up to 15 percent. Reforms that in addition remove distortions before reallocating the released resources toward more productive firms increase productivity up to 83.7 percent.
Authors
Cusolito,Ana Paula, Fattal Jaef,Roberto N., Patino Pena,Fausto Andres, Singh,Akshat Vikram
- DOI
- https://dx.doi.org/10.1596/1813-9450-10929
- Disclosure Date
- 2024/09/25
- Disclosure Status
- Disclosed
- Doc Name
- The Financial Premium and Real Cost of Bureaucrats in Businesses
- Originating Unit
- Off of Sr VP Dev Econ/Chief Econ (DECVP)
- Pages
- 50
- Product Line
- Advisory Services & Analytics
- Published in
- United States of America
- Rel Proj ID
- 1W-Business Of The State -- P179118
- Series Name
- Policy Research working paper; PROSPERITY;
- TF No/Name
- TF0C0216-SOEs in high emitting sectors,TF0C0262-SOEs in high emitting sectors
- Unit Owning
- Prosperity-FCI-TIC-Mkts,Comp&Tec (ETIMT),EFI-LCR-MTI-MacroFiscal (ELCMU),DECRG: Macroeconomics & Growth (DECMG),Office of the Chief Economist (ECACE)
- Version Type
- Final
- Volume No
- 1
Table of Contents
- Introduction 4
- Literature Review 9
- Model 12
- Efficient Allocation 15
- Data 16
- Empirical Strategy 20
- Empirical Results 22
- Productivity Gains from SOE Structural Reforms 26
- Productivity Gains: Dismantling all SOEs and Distorted Capital Markets 27
- Productivity Gains: Targeted SOE Reform and Distorted Capital Markets 29
- Productivity Gains: Targeted SOE Reform and Fixed Capital Markets 30
- Conclusion 31
- Historical Financial Data Cleaning Procedure 33
- Validation of Final Database 35
- Historical Ownership Data Cleaning Procedure 37
- Misallocation and Model Mis-specification 38
- Decomposition 39
- Controlling for Real Shocks 43
