Government assistance to state-owned enterprises: a hindrance to financial performance
Open Access
- 15 May 2020
- journal article
- Published by LLC CPC Business Perspectives in Investment Management and Financial Innovations
- Vol. 17 (2), 40-50
- https://doi.org/10.21511/imfi.17(2).2020.04
Abstract
This study aimed to examine whether government financial assistance influences the financial performance of state-owned enterprises. Commercial state-owned enterprises in South Africa that are listed under the Public Financial Management Act during the post-apartheid era from 1995 to 2017 were sampled. Government guarantees were measured as a dummy variable, while financial performance was measured by accounting measure: return on assets (ROA). Endogeneity issues were addressed, and data analysis was performed on an unbalanced panel using the two-step system GMM. The empirical evidence indicated that support by the government in the form of guarantees and subsidies has a significant negative effect on the financial performance of state-owned enterprises. This is an indication that continued government bailouts to poor performing state-owned enterprises exacerbates their poor financial performance and encourages these enterprises to become too reliant on government assistance, burdening the national fiscus. AcknowledgmentsThe author gratefully acknowledges the National Research Foundation of South Africa for the research grant and Dr Farai Kwenda for his supervision during the study.Keywords
This publication has 21 references indexed in Scilit:
- Government subsidy, strategic profitability and its impact on financial performance: empirical evidence from IndonesiaInvestment Management and Financial Innovations, 2017
- Capital Structure and Firm Performance: Empirical Evidence from IndiaVision: The Journal of Business Perspective, 2015
- Agency theory, capital structure and firm performance: some Indian evidenceManagerial Finance, 2014
- THE FUTURE OF PUBLIC ENTERPRISES: PERSPECTIVES FROM THE CANADIAN EXPERIENCEAnnals of Public and Cooperative Economics, 2011
- Government guarantees and public debt in CroatiaFinancial Theory and Practice, 2011
- The impact of capital‐structure choice on firm performance: empirical evidence from EgyptThe Journal of Risk Finance, 2009
- Debt policy and performance of SMEsThe Journal of Risk Finance, 2007
- Capital Structures in Developing CountriesThe Journal of Finance, 2001
- Initial conditions and moment restrictions in dynamic panel data modelsJournal of Econometrics, 1998
- Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment EquationsThe Review of Economic Studies, 1991