Measuring the Impact of State Participation on the Financial Results of Companies

This paper investigates the relationship between state presence and the market and financial performance of enterprises in four sectors of the Chinese economy over the past 20 years. First of all, the experience of previous research on this topic was studied, by which the necessary parameters were selected and the hypotheses of interest were formulated. Since the tests showed that the best models for all the studied indicators are random-effect models, the conclusions will be drawn on them. For example, the estimation of the effect of government equity ownership of firms on their performance showed that government presence has a negative effect on the market performance metrics of firms. The assumption that government influence has non-linear effects was not confirmed. Also, both binary variables of government involvement and binary variables of government control had a negative effect on Tobin's Q ratio and M/B ratio. If we consider the models for ROA and ROE, only the factor of state control, which understates the financial performance of companies, was significant. In terms of control variables, leverage was significant for ROA and ROE models, while liquidity was significant for Q ratio and M/B ratio. Both have a negative coefficient, which is predictable for leverage and unexpected for liquidity. Probably, the high liquidity ratio tells investors about the inefficiency of the management which is too conservative in utilizing the available cash of the company. Asset ratio was found to be significant in all models except Tobin's Q ratio and has a positive effect on the dependent variables. The net profit indicator is significant in all models (almost everywhere at 1% significance level) and also has a positive impact. If we look at the impact of crises, we can note the fact that the 2008-2009 crisis did not produce significant results, while the 2019-2020 crisis had a significant negative impact on all dependent variables. In turn, the presence of the state had a mitigating effect and improved the performance of these companies during the crisis, which confirms our hypothesis number 5. The modeling also took into account the indicators of belonging to a certain industry. For this purpose, additional dummy variables were introduced. The results of the models showed that in the priority sectors of the economy for the Chinese government, heavy industry and energy, the presence of the state in the share capital of the company has a significant positive effect. This may be due to the fact that in order to develop strategic sectors, the Chinese government can make it easier to introduce business in these segments of the economy at the legislative level. For example, lower taxes, increase subsidies, reduce the number of inspections and so on. In the other sectors studied, light industry and retail no significant effect from the presence of the government is observed. Thus, the results of the study tell us that there is evidence to support the claim that state ownership has a negative impact on the financial and market performance of firms in China. Thus, market efficiency is affected even by minority state participation. In turn, financial efficiency is affected only by the state's controlling stake.