State Ownership and the Allocation of Capital

Kuang, Chun; Zhu, Wanling

doi:10.2139/ssrn.3275811

Cited by 1 publication

(2 citation statements)

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“…We also find that SO influences the previous results: a larger percentage of SO decreases the positive effect of OC on the sensitivity of expansion investments to cash flow. The differences we find cannot be explained by changes in the main characteristics of mines (Kuang & Zhu, 2019).…”

Section: Introductioncontrasting

confidence: 79%

“…Regarding the effect of SOEs on investments, Chen et al (2017), using data on privatized firms from 64 countries, find that SOEs weaken the investment sensitivity to investment opportunities. Kuang and Zhu (2019) find that SOEs misallocate capital across markets and are outperformed by their private counterparts. Jaslowitzer et al (2018) find that SOEs curtail the sensitivity of investments to Tobin's Q, while An et al (2016) show that SOEs negatively affect the sensitivity of capital allocation to investment opportunities.…”

Section: Theory and Hypothesesmentioning

confidence: 99%

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The effect of ownership structure on investment decisions under exogenous shocks

Ramirez

Tarziján

Lagos

2022

Corporate Governance

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Research Question/Issue We assess how ownership concentration influences the sensitivities of expansion investments and maintenance investments to changes in a firm's cash flow. We find the causal effect by exploiting the exogenous variation in the price of a firm's product. We also evaluate whether state versus private ownership affects the impact of ownership concentration on investment–cash flow sensitivities. Research Findings/Insights Using detailed data from 134 major copper mines operating in 29 countries over a 17‐year period, we show that a more concentrated ownership increases the sensitivity of expansion investments to changes in a firm's cash flow, while we do not detect a significant effect for maintenance investments. We also find that state ownership negatively moderates the effects of ownership concentration on the expansion investment–cash flow sensitivity. Theoretical/Academic Implications The findings improve our understanding of ownership structures and show the nuances of these structures when different ownership features are combined in the assessment of investment sensitivities. Practitioner/Policy Implications The asymmetric effects of ownership structures on different investment sensitivities call for a more fine‐grained analysis of incentives, benchmarking, and information disclosure policies. This issue is especially relevant in state‐owned enterprises (SOEs) and in firms with a low ownership concentration.

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Section: Introductioncontrasting

confidence: 79%