Theoretical perspective of Corporate Governance among State Owned Enterprises (SOEs): A Literature Review

Theories of Corporate Governance Applied to State-Owned Enterprises

“…The authors developed the theory starting from the idea formulated by Adam Smith in 1776, which said that when those who own the property and those who manage it are not the same, there is a potential conflict of interest between the two parties. In other words, their interests do not converge (Abang'a et al, 2020). Agency theory grounds its hypotheses on human behaviors: individualism, opportunism, consistent efforts to maximize one's own benefit, and influenceable decision-making behavior.…”

“…Both international bodies (OECD -Corporate Governance Code) and researchers (Parmar et al, 2010) recognize the importance of interested parties' involvement. The stakeholders need information revealing the actions carried out by SOEs such as the timely publication of the annual reports as Parliament to exercise its supervisory role, the electorates need audited annual financial reports to assess the use of resources and performance level of the government, the financiers of the government (internalcitizens; external -International Monetary Fund, the World Bank) are interested in disclosing the performance of the government to promote trust among citizens and external partners (Abang'a et al, 2020;Martani et al, 2014). The guidelines on corporate governance of state-owned enterprises require governments and SOEs to recognize and respect the rights of stakeholders established by law or mutual agreements, and to report the relations with such stakeholders (Gnan et al, 2013).…”

“…Wang et al (2019) and Lioukas et al (1993) state that independent directors who are politically affiliated are a source of funds for political activities as well as vital factors in accessing external funding. By applying the principles of resource dependency theory on state-owned enterprises, can be stated that corporate governance among SOEs will be influenced (positively or negatively) by the objectives set by the government, due to SOE's dependency on resources from the government in critical situations and the appointment of board members by the government (Abang'a et al, 2020). For example, if the government wishes to exercise an appropriate use of power, SOEs will respect the limits and act accordingly.…”

“…For example, if the government wishes to exercise an appropriate use of power, SOEs will respect the limits and act accordingly. Otherwise, if the government is corrupt, the enterprise will use the allocation of financial resources inappropriately to achieve this goal (Abang'a et al, 2020). Also, if the public enterprise decides to run the entity against the political force in power, then the allocation of resources can be used as a punishment to align the activities with the requested objectives (Lioukas et al, 1993).…”

“…An important role of SOEs (regardless of taxonomy) is the provision of utilities and infrastructural industries development such as energy, transport, and telecommunications. Though, the survival of SOEs continue to face challenges emanating from poor governance, it is estimated that SOEs contribute to the word GDP by approximately 10% (Abang'a et al, 2020;Bruton et al, 2015). The scope or main objective of the study is to review previous academic literature to identify the theories that influence the concept of governance in the case of state-owned enterprises.…”