Mixed-Ownership Reform and Innovation: An Examination of State-Owned Enterprises

Prior literature on ownership suggests that in the majority of cases, state ownership in state-owned enterprises (SOEs) is not an optimal structure for firm performance, especially in emerging economies. Mixed-ownership structures are designed to overcome this disadvantage. However, their impacts on innovation are not well understood. We examine whether and how SOEs’ innovation efforts benefit from mixed-ownership reform, using a sample of 375 publicly listed SOEs operating in China between 2003 and 2019. We discuss principal–principal and principal–agent conflicts in SOEs and argue that the increase in managerial autonomy that accompanies mixed-ownership reform releases SOEs from state control and orients them toward engagement with market forces, encouraging higher levels of innovation. Our results suggest that both the frequency and the impact of innovation in SOEs are improved by mixed-ownership reform. We further find that this relationship is more pronounced when SOEs are affiliated with the central government, and it is strengthened through an anticorruption policy. This study provides fresh insights into the role of mixed-ownership reform in emerging economies.