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Do China's state-owned enterprises maximize profit?

journal contribution
posted on 2000-09-01, 00:00 authored by C Choe, Xiangkang YinXiangkang Yin
China's state enterprise reform is often believed to have made profit the most important goal of SOEs. Nonetheless the poor performance of SOEs relative to other forms of enterprises remains puzzling. We offer an explanation based on the incentive aspect of the reform, which complements the theory based on a soft budget constraint. Under certainty, the incentives of enterprise managers to maximize their own compensation are consistent with profit maximization with or without a soft budget constraint. Under uncertainty, however, the managers' incentives generally deviate from expected profit maximization. This deviation is dampened by, but still exists even without a soft budget constraint.

History

Journal

Economic record

Volume

76

Issue

234

Pagination

273 - 284

Publisher

Wiley

Location

Abingdon, Eng.

ISSN

0013-0249

Language

eng

Publication classification

C1.1 Refereed article in a scholarly journal

Copyright notice

2000, The Economic Society of Australia

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