Government assistance to state-owned enterprises: a hindrance to financial performance

  • Received January 24, 2020;
    Accepted May 5, 2020;
    Published May 15, 2020
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  • Article Info
    Volume 17 2020, Issue #2, pp. 40-50
  • Cited by
    7 articles

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This work is licensed under a Creative Commons Attribution 4.0 International License

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.

The author gratefully acknowledges the National Research Foundation of South Africa for the research grant and Dr Farai Kwenda for his supervision during the study.

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    • Table 1. Descriptive statistics
    • Table 2. Correlation analysis
    • Table 3. Regression analysis
    • Conceptualization
      Ferina Marimuthu
    • Data curation
      Ferina Marimuthu
    • Formal Analysis
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    • Investigation
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    • Visualization
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