ABSTRACT
The performance of state-owned enterprises (SOEs) suffers from both political costs
(i.e. the costs associated with control of firms by politicians who have political goals
that differ from economic efficiency) and agency costs (i.e. the costs resulting from
managerial pursuit of private benefits at the expense of the firm) (Shleifer and Vishny,
1994; Qian, 1996). Whether these costs can be contained is the key to the success of
SOE reforms. The large-scale ownership and organizational reform of Chinese SOEs
during the second half of the 1990s represents the Chinese government’s attempts to
address the issues of politician control and agency problems.
