State-Owned Multinationals in International Competition

This chapter explores the challenges and advantages of state-owned multinational companies (SOMNCs) vis-à-vis private firms in global markets. SOMNCs are a common form of hybrid organization in emerging markets and have features that differentiate their behavior from that of competitor private firms. However, it is not clear if SOMNCs perform better than private firms (given the ownership advantages they have) or underperform them (given the variety of agency problems they deal with). This chapter argues that, in contrast to the old model of state ownership, modern SOMNCs are often publicly traded corporations, with corporate governance and financial reporting practices similar to those of private firms. Furthermore, these firms also enjoy a variety of benefits and rents from being associated with the state, such as access to subsidized financing, protections from competitors, and so forth. Yet, there is also a liability of stateness, which has to do with government meddling in SOMNCs and with the fact that government ownership carries legitimacy issues when these firms internationalize. This chapter reviews the existing literature on SOMNCs and provides original evidence on the performance of these firms. This evidence and the matching exercise demonstrate that publicly traded SOMNCs perform at least as well as similar private firms, either because they get rents or because they have overcome most of the inefficiencies of the past.