The Influence of State Ownership on the Economic Performance of Korean Public Companies

Abstract

The property rights and agency cost theory of enterprises suggests that public ownership should perform less efficiently and profitably than private ownership. However, the existing empirical evidence provides weak support for this hypothesis. Numerous studies of Western capital markets and Chinese state enterprises have examined the relationship between ownership structure and performance. Agency theory suggests that when owners do not manage a firm themselves, a conflict of interest arises between the owners (principals) and managers (agents). Researchers have argued that government ownership is inferior to private ownership in competitive markets because it prioritizes social and political goals over value maximization, hiring decisions are often based on political influence rather than ability, and higher transaction costs are involved. This study investigated the influence of two factors, listing on the Korea Exchange and degree of state ownership, on performance using annual data for 51 companies in Korea for 1999-2009. We found that, on average, performance (measured by productivity, profitability, and efficiency) was positively influenced by public listing and negatively influenced by the degree of state ownership.