ABSTRACT
The performance of state-owned enterprises (SOEs) suffers from both political costs and agency costs. This chapter contributes to the literature on comparative economic transition. It focuses on the determinants of post-reform operating performance. The chapter uses a large sample of firms from a national survey in China to examine the short-run impact of ownership reform on performance. Politician control is sometimes viewed as a form of agency problem because politicians enjoy the control rights but are not the residual claimants, and thus can be viewed as agents of the citizens. Politician control also manifests itself in the selection and replacement mechanism of CEOs. Agency problems arise as managers enjoy more authority, formal as well as real, over business decisions, thanks to delegation reforms. Corporate governance in reformed enterprises often deviates from what is stipulated in the law and may be quite ineffective in containing agency costs. The chapter examines how business autonomy, ownership structure and corporate governance affect performance outcomes.
