Corporate Governance. State Owned Enterprises

1. Corporate Governance

State Owned Enterprises

2. State Owned Enterprises (SOE): When and Where SOEs Emerge?

In countries with market failure
In emerging economies shifting to market economy
Justified by better allocation of resources in places where
there are no signs of healthy competition
In other developed countries SOEs exist to provide the most
vital to state services: road and bridge
construction/maintenance, education, national security,
energy/gas, airlines, etc.
SOEs traditionally are criticized for a number of reasons:

3. The Case against the SOEs

SOEs traditionally are criticized for a number of reasons:
- SOEs use capital less efficiently
- SOEs absorb talent and capital
- SOEs work only when directed by a competent state
- SOEs produce cronyism as the favor connected insiders rather than
innovative outsiders
- Subsidies and not collected dividends create bigger cash flows
making the agents/CEO’s slack from owners and consume more
perks.
- SOEs pursue double bottom line at the expense of minor shareholders
- Impact on domestic and global trade

4. The Case for SOEs

Per Pargendler et al. the mixed SOEs provide for a better
platform for investments where markets fail.
They argue that combination of government regulation from
the standpoint of SOE owner and private ownership go well
together complementing each other and provide for more
efficiency

5. The Case for SOEs

Advantages:
- Private ownership in SOEs opens up for more transparency and
monitoring, as listed companies need to publish financial
statements
- States are able to pursue specific public policies via SOEs
- Stock prices of listed SOEs also provide for more information
on company’s and CEOs performance.
- Private capital injected into SOEs provides an opportunity for
investing in large and risky projects
Private investors also enjoy privileges provided to the SOEs
Prices ex ante are discounted
Governance and legislation mitigate the agency costs

6. Controversies about SOEs

Debate on short-termism v long-term horizons
Which ones would be long-term oriented, listed or non
listed SOEs?
Per scholars, the ultimate owners of the SOEs are the
citizenry of the state. Do you agree? Then what is wrong
with the model?

7. Comparison of Pemex, Petrobras and Statoil

Which of the three have better governance structure?
What are the criteria to judge?
Which one has the biggest return?
Which of those have better firm valuation?
Does politics play role in SOEs?
Is political interference a positive or negative element?

8. SOEs in China

What is the ownership structure in most of the Chinese
business groups?
How did that develop into current situation?
What is the role of the SASAC?
What is the main criticism of the authors Milhaupt and Zheng?
- Dividends
- Exec Compensation
- Failure to implement public policies
- Influences on corporations it owns via regualtion

9. Privately Owned Enterprises (POEs) in China

Incumbents vs. Captors
How would you describe the state capture of POEs?
What are the main criteria for capturing?
What are the ways of capture?
- Connections (personal, professional, etc.)
- Corruption
- Economic growth (!!!!)
- What is the role of the local leaders in economy there? Would
it be appropriate for Armenia?

10. SOEs in China and around the Globe

What were the reasons for the short-lived success?
Did the Chinese leadership’s anti-corruption reform affect
Chinese outbound investments? Why?
Why do the reporters criticize the SOEs and how they
explain the recent falling out of rankings of the SOEs that
had topped the rankings a decade ago?
Do you agree that the SOEs should go public? How much?
In all industries?

11. Volkswagen Law

The law envisaged two public authorities- shareholders of VW,
FRG and Land of Saxony, will retain the right to appoint two
members each to the Board of the company
Also the law capped the voting rights to 20%
Also blocked the minority shareholders to 20% of the share
capital to oppose the major decisions (makes it impossible to
takeover the company)
ECJ ruled in favor of keeping the third provision, ruling that no
violation to free movement of capital has been done by
maintaining the provision.