*100 (%). This variable is provided directly in the financial statements from ORBIS (BvD). Estimates include all sample. Size is measured as the log of total workers in year t-1 for the outcomes in columns (2-6), whereas size is measures as log of total assets when estimating labor productivity (Column 1) since the outcome is normalized by employment. Age is the lagged number of years in the market in t-1. Listed status is a dichotomous variable that takes value 1 if the company is listed in the stock market, 0 otherwise. Fixed effects are included to absorb for potential shocks such as temporary shocks (year-FE), sectoral shocks (sector-FE), time-varying sectoral shocks (sector-year FE), country specific shocks (country-FE), country time varying events (country-year FE), and country and sector specific and time varying shocks (country-sector-year, FE). Clustered standard errors are used to control for potential autocorrelation at the industry-level.

Compared to firms solely owned by the state, firms with private participation operate more closely to their private counterparts. As state participation decreases, the gap between BOS and POEs seems to shrink. Results in column 1 (Table 12) suggest fully owned BOSs are approximately 35% less productive than POEs, whereas the gap reduces up to 17% when the state is a minority shareholder (i.e., participation between 10%-24.9%).<sup>21</sup> Similar results are found in terms of profitability and return on investments. Profit margins (column 2) in fully-owned BOS are, on average, 8.5 percentage points lower than those reported by private counterparts within the same industry. As the state participation reduces to less than 25% (minority shareholding), the gap is only about 2.8 percentage points.

Returns on equity and assets show a similar pattern. Fully owned BOSs are more distant from POEs than firms with mixed ownership. When the state is a minority shareholder, the ROA for BOSs is about 3.1 percentage points lower than POEs, while for majority and fully owned BOS this difference increases up to 4.2 and 6.1 percentage points, respectively.

The lower the state participation, the smaller the performance gaps in terms of liquidity. For each dollar due within a year, fully owned BOSs have on average 0.6 dollars less to cover short-term obligations in current assets (column 3). On the contrary, the gap decreases to 0.2 when the state holds less than 25% participation. Overall, firms with 10% or more state participation have lower reserves on assets to fulfill financial commitments in the long term measured by the solvency ratio (column 4). Yet, when there is mixed ownership and the private sector is the main owner, the differential is about five times lower.

These results can obey to different risk-taking decisions when the state holds a dominant role as owner. As the state controls or owns more shareholding in a firm, it can outweigh other shareholders and leverage the connection to potential external resources. Hence, the level of state participation can influence risk-taking behavior and investment decisions, which may not necessarily be driven by profitability objectives (Uddin, 2016; Nguyen et al, 2020). Firms with higher state shareholding could be more exposed to the influence of the government, hindering effectiveness, and profitability by squeezing out commercial goals (Boko & Qin, 2011). Results highlight that the private sector can play an important role driving improved performance. As suggested by (Shang, Yuan, Li, & Fan, 2022), mixed ownership and non-state shareholders seem to reduce potential discretion of the state to influence management decisions of the firm and help mitigating principal-agency problems. Results seem indicative that private shareholding can help to balance the decision on whether to take a more prudent or market-oriented approach driven by considerations about performance, survival, and growth rather than social and political objectives (Nguyen et al, 2020).

# **_6.3 Does the degree of separation from the state matter?_**

The state can act as a direct shareholder or operate at arm’s length through other entities. By using the WB BOS database, we can explore whether there are potential differences when the state is the direct shareholder compared to cases in which it owns a BOS through other(s) firm(s) (i.e., indirect owner).

Former authors such as Okhmatovskiy (2010) and Liljeblom, Maury, & Hörhammer (2020) argue effects of state ownership on performance may be more evident among directly owned companies, while the effect

> 21 The interpretation of the coefficients requires the Log−Lin transformation such that the average relationship is estimated as (exp(β1) −1) ∗ 100.

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