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A Comprehensive Evaluation Framework on the Economic Performance of State-Owned Enterprises

Publication | May 2019
A Comprehensive Evaluation Framework on the Economic Performance of State-Owned Enterprises

State-owned enterprises play a key role in the economy of many countries, especially in developing Asia.

State-owned enterprises (SOEs) play a key role in the economy of many countries. They are usually thought to be in charge of increasing social welfare. At the same time, their relatively low performance poses several problems, including slowing down economic growth, which is especially pronounced in countries where these firms represent a large share of the economy. Therefore, it is crucial for central governments to implement a comprehensive evaluation method to assess the performance of SOEs. By employing the principal component analysis technique and using data of 1,148 SOEs, mostly from European countries, we provide a more comprehensive framework for assessing SOE performance, which includes various factors: profitability, per capita productivity, per capita costs, debt due days, and solvency. The results of our empirical study show that solvency, per capita costs, and per employee productivity have more deterministic power over the success or failure of SOEs than profitability. Focusing on profitability as the sole assessment criterion will mislead policy makers, keeping in mind also that the nature of many SOEs is to generate social welfare and not profit.

WORKING PAPER NO: 949