The Costs and Benefits of Government Control: Evidence from China’s Collectively-Owned Enterprises Jiangyong Lu /Peking Universitya Zhigang Tao/University of Hong Kongb Zhi Yang/Hua Zhong University of Science & Technologyc May 2009 Abstract: China’s collectively-owned enterprises are unconventional, as they are nominally owned by those people residing in the areas where the enterprises are located but effectively controlled by the local governments. This study finds that collectively-owned enterprises, once being privatized, encounter an increase in the cost of goods sold to sales ratio but manage to lower down the managerial expenses to sales ratio. The findings imply that local government officials may help collectively-owned enterprises gain access to cheaper production inputs, but they may use those enterprises to pursue private benefits, thereby shedding lights on the costs and benefits of government control. JEL classification codes: L33, P31, D23 Keywords: China’s collectively-owned enterprises, costs and benefits of government control, managerial expenses, and cost of goods sold a Department of Strategic Management, Guanghua School of Management, Peking University, Beijing, P.R.China. Email:
[email protected] b School of Business, and School of Economics and Finance, University of Hong Kong, Pokfulam Road, Hong Kong. Email:
[email protected] c School of Management, Huazhong University of Science & Technology, Wuhan, P.R. China. Email:
[email protected] The Costs and Benefits of Government Control: Evidence from China’s Collectively-Owned Enterprises May 2009 Abstract: China’s collectively-owned enterprises are unconventional, as they are nominally owned by those people residing in the areas where the enterprises are located but effectively controlled by the local governments.