Privatization of Soes and its Innovation Performance : A Reexamination

The empirical literature on the relative innovation performance of state-owned enterprises (SOEs) versus private firms in China often reaches conflicting results. In this study, we revisit the question by constructing a comprehensive dataset, linking the Annual Survey of Industrial Enterprises dataset with patent quality data. We explore along two dimensions by matching SOEs with private firms to compare their innovation performance, and by investigating the effect of privatization on the innovation of former SOEs. Our findings reveal a hitherto unreported landscape of innovation performance of SOEs versus private firms. The comparison suggests that innovation output appears to be higher for SOEs compared to private firms. Importantly, we find that privatization of SOEs overall leads to a decrease in innovation performance at the firm level. The adverse effects of privatization are more evident for firms with high financial constraints and firms in the competitive industry. Our findings contribute to a more in-depth understanding of the relative performance in innovation by SOEs and private enterprises and have important policy implications on the ongoing SOE reforms in China and other developing countries