Does government paternalistic care promote entrepreneurship in China? Evidence from the China Employer-Employee Survey

ABSTRACT

This article examines whether government paternalistic care exerts positive effects on entrepreneurship in China, and the channels through which paternalistic care affects entrepreneurship, using data from the 2015 baseline of the China Employer-Employee Survey (CEES). The data suggests that over 70% of manufacturing firms received at least one type of government paternalistic care, though the distributions are different depending on the firm’s size, ownership, industry, firm and entrepreneur’s age. The empirical analysis indicates that government paternalistic care negatively affects entrepreneurship by diminishing innovation capability. Human capital and imported intermediate goods should be the driving forces for a firm’s development, but government paternalistic care has a counterproductive effect on those two factors, thereby impeding entrepreneurship. The results show that those good intentions have gone awry. The government should gradually terminate its paternalistic policies for firms, and firms need to promote their own solid innovation capability.

Abbreviations: CEES: China Employer-Employee Survey SOE: State-owned enterprise     

SUBSIDIES AND INEFFICIENCY: STOCHASTIC FRONTIER APPROACH

U.S. urban transit systems receive operating and capital subsidies from various levels of government. Each firm minimizes its cost net of subsidies subject to its production function. The first order conditions from this minimization give a set of equations that are estimated using a stochastic frontier approach. From the results are calculated technical and allocative inefficiencies. The allocative inefficiencies are further decomposed among two sources, subsidies and factors internal to the firm. The analysis reveals large allocative inefficiencies between labor, fuel, and capital. Furthermore, it finds that subsidies lead to excess use of labor relative to capital and excess use of fuel relative to capital and labor. Also, most allocative inefficiencies in firms are due to internal factors and not subsidies, and the sizes of the inefficiencies vary substantially among transit firms.     

Privatization when the public firm is as efficient as private firms

The literature on mixed oligopoly shows that when production costs are quadratic the public firm is privatized if the competition in the product market is high enough. Similarly, when the public firm is less efficient than private firms and the marginal costs of production are constant, the government privatizes the public firm if its efficiency is low enough. In this paper we analyze this issue assuming that the public firm maximizes the weighted sum of consumer surplus, private profit and the profit of the public firm. If all firms have the same marginal cost of production we obtain that for some value of parameters the government does not privatize the public firm regardless of how many private firms are competing in the product market. We also obtain that the consumer surplus can be lower in the mixed oligopoly than in the private oligopoly.     

Political uncertainty and labour investment efficiency

ABSTRACT

We examine the impact of political uncertainty on the labour investment efficiency (LIE) of a firm. Using a sample of Chinese firms, we test the market discipline and managerial entrenchment hypotheses. Our findings suggest that political uncertainty adversely affects LIE. The results are consistent with the managerial entrenchment hypothesis. That is, firms hire more labour in a period of increased information asymmetry due to the political uncertainty, which deteriorates LIE. Our findings are robust to a battery of alternative measures of LIE and estimation methods. We conduct several additional analyses and document that the adverse impact of political uncertainty is stronger when the newly appointed government official is older, the firm is state-owned, the firm belongs to a politically sensitive industry or the firm operates in locations with stringent labour protection. By contrast, when the firm locates in a region with weak Chinese government intervention or after President Xi Jinping’s anti-corruption campaign, the adverse impact of political uncertainty on LIE is less pronounced. Last, we document that after hiring more labour, firms receive tangible and intangible benefits in terms of receiving more loans, collect more government subsidies, and able to re-establish some political connection but at the cost of lower performance.     

Mixed Duopoly,Merger and Multiproduct Firms

The literature on mergers has extensively analyzed the decision to merge by private firms, but it has not considered the decision to merge by private and public firms. We assume that when a private firm and a public firm merge (or when one of them acquires the other), they set up a multiproduct firm in which the government owns an exogenous percentage stake. In this framework, we show that the decision to merge by firms depends on the degree to which goods are substitutes and on the percentage of the shares owned by the government in the multiproduct firm.     

Unions, government's preference, and privatization

By introducing the government's preference for tax revenues into the theoretical framework of unionized mixed oligopolies, this study investigates the efficiency of privatization. The results are twofold. First, regardless of the government's preference for tax revenues and the number of private firms, the government and the public firm do not always have an incentive to privatize the public firm even if the government places lesser emphasis on the tax revenues than on social welfare. Second, social welfare increases with an increased number of private firms regardless of the government's preference for tax revenues and decreases with the government's preference for tax revenues regardless of the number of private firms. Hence, the government can use tax more efficiently as a commitment device to control the union's wage demand so as to maintain lower wage level under unionized mixed oligopoly.     

Lack of commitment to future privatization policies may lead to worst welfare outcome

We investigate the welfare consequences of a lack of commitment to future privatization policies. The government implements a privatization policy after the competition structure is determined by the entry of private firms. We find that in an equilibrium, the government fully privatizes (nationalizes) a public firm if private firms expect that the government fully privatizes (nationalizes) the public firm. This is because an increase in the number of firms entering a market increases the government's incentive to privatize the public firm, which mitigates future competition and stimulates entries. The full-privatization equilibrium is the worst privatization policy among all possible (either equilibrium or non-equilibrium) privatization policies for welfare because it causes excessive market entry of private firms. Partial commitment of a minimal public ownership share may mitigate this problem.     

分工、协作与企业合作剩余创造——马克思企业理论分析框架的一般化

马克思企业理论有着科学的方法论基础和开放性的理论体系.但由于其企业理论揭示资本主义剥削本质的特殊使命,使其具有一定的特殊性.本文在遵循马克思企业理论科学的逻辑框架基础上,通过引入经济、制度环境和政府权力的相机介入而尝试构建了马克思企业理论的一般化分析框架--分工、协作与企业合作刺余创造范式.该范式内生地解释了企业的产生.融合了企业内效率与公平问题.突出了企业生产性本质和追求合作剩余最大化的目标.     

The tax advantage of public firms over private firms in the German household solid waste disposal industry

We measure the tax advantage of public firms over private firms, which operate at municipality level in the German household solid waste disposal industry. Public firms with sovereign duties pay no taxes, but equivalent private firms have to. In a simple risk-free setting, we develop a measure of the percentage difference of the charges of both types of firms demanded under their respective tax treatments. We model a cost-covering public firm and a net present value maximizing private firm. For sensible model parameters from the German waste disposal industry the private firm has to demand an about 16% to 18% higher charge. The by far biggest impact on the measure has the value added tax, with revenues as a much larger tax base than profits. Tax savings, which directly affect pre-tax profits, only alleviate the disadvantage bit. There is some evidence that at least one type of private firms—that is, private law firms that are also majority privately owned, are productive enough to overcome the tax advantage of public firms and be able to charge a lower price than public firms.     

Endogenous timing in a mixed oligopoly with semipublic firms

An endogenous order of moves is analyzed in a mixed market where a firm jointly owned by the public sector and private domestic shareholders (a semipublic firm) competes with n private firms. We show that there is an equilibrium in which firms take production decisions simultaneously. This result is strikingly different from that obtained by Pal (Econ Lett 61:181–185, 1998), who shows that when a public firm competes with n private firms all firms producing simultaneously in the same period cannot be sustained as a Subgame Perfect Nash Equilibrium outcome. Our result differs from that of Pal (Econ Lett 61:181–185, 1998) for two reasons: firstly, we consider that there is a semipublic firm rather than a public firm. Secondly, Pal (Econ Lett 61:181–185, 1998) considers that the public firm is less efficient than private firms while in our paper all firms are equally efficient.     

Knowledge,coordination and the firm: Historical perspectives

Abstract

This paper illustrates the problems and processes of developing economic knowledge by a selective historical treatment of ideas about the firm. Coase thought it necessary to explain firms as organizations, but not as distinctive productive units; neither did he explain why markets exist. Chamberlin's attempt to introduce product differentiation and selling costs is compared with Allyn Young's process theory and Marshall's treatment of the firm, and inter-firm relations, as means of organizing the growth of knowledge. The firm is a decision-making system in a context of Knightian uncertainty, and Simon's concept of quasi-decomposability applies to human brains and human organizations.     

STRATEGIC BUDGET CONSTRAINTS IN A UNIONIZED MIXED OLIGOPOLY

This paper considers the budget‐constraint problem where the government decides whether or not to impose a budget constraint on the public firm, assuming the public firm is less efficient than private firms. We find that imposing budget constraints on the public firm is the preferred choice because of the welfare‐improving effect. Our model suggests that the wage levels of the public firm can be lower or higher than those of private firms depending upon the degree of inefficiency. These results differ from Ishida and Matsushima's findings that in a unionized mixed duopoly, tight budget constraints can enhance social welfare when the public firm is as efficient as private firms.     

The shadow of death model revisited with an application to French firms

This article provides an empirical model of the shadow of death in which the exit probability of a firm depends on the firm’s productive performance and the firm’s level of sunk costs, which are viewed as barriers to exit. The shadow of death effect is treated by assuming a relationship between the propensity to exit and both the contemporaneous and lagged values of efficiency and sunk costs. To estimate the unobserved productive efficiency, we use the Ackerberg et al. (2006) estimator extended by the addition of a correction for selection bias. We use an unbalanced sample of approximately 100 000 French firms over the period 1997 to 2002. Our results indicate that the probability of exit is negatively affected by unobserved individual efficiency and the level of sunk costs. The shadow of death effect applies mainly in manufacturing, where both productive efficiency and sunk costs decrease during several years before exit. In service sectors, the exit process seems to occur more suddenly.     

Banking deregulation and allocative efficiency in Pakistan

This article examines the impact of deregulation policies on allocative efficiency of banks in Pakistan. It investigates whether deregulation has impacted the pattern of allocative efficiency of banks and explores which bank ownership segment has been more responsive. It uses data from 1991 to 2005 and explicitly models allocative inefficiency by using the translog shadow cost-share system. Empirical results show that overregulation and imperfect market structure hampers the ability of banks to make competitive decisions. We find evidence of allocative inefficiency leading to over-utilization of labour and deposits vis-à-vis operating cost. Empirical results for time-varying allocative efficiency show declining levels of allocative inefficiency for state-owned and private banks in post-reform period. Deregulation policies induce state-owned banks to decrease over-utilization of labour relative to deposits and operating cost while private banks succeed in using operating cost closer to optimal levels. Hence, policymakers have latitude to introduce more reforms without jeopardizing allocative efficiency.     

Digital Platforms and the Nature of the Firm

Abstract:

Digital platforms turn traditional approaches of the firm, which relied on the wage relation to explain the major difference between firm and market, upside down and underline the advantages of coordination through organization over coordination through market. This study aims to propose a definition of the firm able to integrate, besides the integrated firm, also hybrid forms such as networks of subcontractor/subcontracting firms as well as atypical forms such as digital platforms. By reactivating the firm-boundary problem, this article suggests putting valorization by labor at the heart of the firm’s decisions concerning integration. It suggests therefore a general definition of the firm as a techno-institutional center of capital valorization, provided that firms make profits by means of the appropriation of labor incorporated into their (productive, structural, intellectual) capital through institutional arrangements. By stressing the relation of production between the owners of the means of production and the direct producers, the approach of the firm supported here should allow to cover the different existing models of the firm, from the classical firm to hybrid models, around which the boundary debate has revolved, to digital platforms.     

Does support from government help firms survive? Evidence on financial and political assistance in China, 1998–2007

ABSTRACT

Using the National Bureau of Statistics data set over the period 1998–2007, this article examines the dual roles of financial assistance and strong political links on firm survival in China by applying a semi-parametric duration model. We find that generally either financial assistance or strong political links had a positive effect on the likelihood of firm survival. Furthermore, if firms received both types of support from government, their survival rate was around two times as high compared to only receiving a single support. The likelihood of survival depended on the amount of assistance a firm received. We also find firm ownership impacts on its survival pattern. Lastly, China joining the World Trade Organisation (WTO) coincided with (cet. par.) higher firm failure, especially with regard to state-owned firms; however, this period also saw the authorities targeting political and financial help on the ‘better’ firms (especially SOEs) with characteristics likely to increase their chance of survival.     

中国地区腐败对民营企业国有化的影响

本文使用1998-2007年中国工业企业数据库与省级腐败数据,通过一个简单的模型,证明了在腐败的制度环境下,国有股权可以帮助民营企业避免政府侵害,因此腐败越严重、民营企业越倾向于国有化;并且,盈利能力强的企业更容易受到腐败的侵害。本文发现无论是狭义国有化还是广义国有化都与企业所在地区的腐败率以及企业资产回报率显著正相关;此外,资产回报率越高的企业因腐败而国有化的概率越高。因此,“国有化”可能是中国民营企业面对政府侵害的应对措施。这对我们理解转型国家中民营企业的生存环境与政企关系具有重要意义。     

THE EFFICIENCY OF THE STATE‐OWNED FIRM AND SOCIAL WELFARE: A NOTE

We consider a mixed market where a state‐owned firm competes with private firms. If the number of firms is exogenous, then a deterioration of the efficiency of the state‐owned firm might improve social welfare. This situation occurs when the state‐owned firm is inefficient and private firms are efficient. However, if the number of firms is endogenous, then a deterioration of the efficiency of the state‐owned firm must reduce social welfare.     

Market Size and the Survival of Foreign‐owned Firms*

We develop a general equilibrium model with heterogeneous firms and foreign direct investment cost uncertainty and investigate the survival of foreign‐owned firms. The survival probabilities of foreign‐owned firms depend on firm‐level characteristics, such as productivity, and host country characteristics, such as market size. We show that a foreign‐owned firm will be less likely to be shut down when its parent firm's productivity is higher and its indigenous competitors are less productive. Although a larger market size will always reduce the survival probability of indigenous firms, it can lead to a higher survival probability for foreign‐owned firms if their parent firms are sufficiently productive.     

Seize the state, seize the day: state capture and influence in transition economies

Data from the 1999 Business Environment and Enterprise Performance Survey is used to examine state capture and influence in transition economies. We find that a capture economy has emerged in many transition countries, where rent-generating advantages are sold by public officials and politicians to private firms. While influence is a legacy of the past inherited by large, incumbent firms with existing ties to the state, state capture is a strategic choice made primarily by large de novo firms competing against influential incumbents. Captor firms, in high-capture economies, enjoy private advantages in terms of more protection of their own property rights and superior firm performance. Despite the private gains to captor firms, state capture is associated at the aggregate level with social costs in the form of weaker economy-wide firm performance. Journal of Comparative Economics 31 (4) (2003) 751–773.