Contract failure of state-owned enterprises under the control of external parties

Author: Yu Lai
Publisher:
Publish Date: 2003-01-01
Features: In terms of research methodology, this paper conducts in-depth process research on individuals through case studies to explore the origins or characteristics of organizational or social behavior. The research findings and main conclusions of this paper are as follows: , the institutional environment of external control is the failure of the separation of government and enterprises, the failure of legal regulations, and the failure of the accountability system. In this institutional environment, external control leads to the failure of contracts in state-owned enterprises. Second, the organizational basis of contractual failure is that the contract surrounding the principal-agent relationship of state-owned enterprises is a collective contract, and all parties to the contract are organizations rather than individuals. Within the organizations of the contracting parties, the logic of collective behavior makes it difficult to monitor the quality of the contract and the fulfillment of the enterprise. However, as economic agents, members of the contracting group, in pursuit of maximizing personal utility, make the collective contract a rent-seeking contract. Third, the public good nature of state-owned enterprises is the institutional foundation of external control and the fundamental reason for contractual failure. This public good nature is both a need for rent-seeking and a result of rent-seeking. The generalization of state-owned enterprises as public goods is the prerequisite for rent-seeking against state-owned enterprises, because public goods exhibit shared non-exclusivity and non-competitiveness. The transformation of state-owned enterprises into public goods provides conditions for the expansion of rent-seeking and the formation of rent-seeking networks, as well as the formation of a privileged class. At the same time, it is consolidated through systematic rent-seeking. In the rent-seeking system, government officials hold a dominant position, reinforcing the public good nature of enterprises. Fourth, the case of debt conversion into equity illustrates that the key to reforming state-owned enterprises is to reconstruct rules centered on a personalized accountability system, replacing collective contracts with individual contracts. To break the rent-seeking system, sever the channels of rent-seeking, and rebuild market and legal rules. The corresponding measures are to establish an accountability system centered on the principle of shareholder interests paramount through means such as property rights diversification.