Poor SOE performance seems to lead to a plethora of problems for government budgets, financial stability and market reforms. It has been shown that, in general, SOEs perform worse than private firms in terms of profitability and productivity, while sectoral allocative efficiency is lower when a larger fraction of employees is working in SOEs.
SOEs face the perpetuation of unethical business practices – preferential employment, covert financing of political parties and corrupt procurement being the best-known examples. Such a milieu is possible due to poorly constructed corporate governance arrangements: a lack of public scrutiny mechanisms, political appointments to managerial positions, no internal control practices and shallow external audits.
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