Multiple performance criteria for government-controlled firms

This study examines the extent to which government versus private controlling shareholders explain differences in multiple performance criteria. Drawing on the economic, political and civil service governance environment in China, we identify performance evaluation criteria for Chinese government officials and use these to develop performance measures that reflect important government objectives for listed firms. We find that, compared to privately controlled firms, firms controlled by the central or local governments have lower financial performance and higher excess employment. Our results also suggest the use of firms for employment objectives are strategically moderated for government-controlled firms according to their financial prospects. Cross-sectional analyses show that government-controlled labor-intensive and coastal firms exhibit less inferior financial performance and yet higher excess employment. Further, we do not find any evidence that differences in financial performance between government-controlled and privately controlled firms are a result of overinvestment. Our results suggest that financial performance measures do not adequately reflect the objectives of government-controlled firms.