- IV. It is set up for the purposes of engaging in market production (i.e., it provides goods and/or services in exchange of a price).<sup>14</sup>

The SOE definition builds on the International Monetary Fund’s (IMF) Government Finance Statistics Manual 2014 definition of SOEs, by adding an objective and quantitative criterion to proxy government control.<sup>15</sup> Generally, to assess the degree of “control” by the government on a corporate entity would require a firm-by-firm analysis. While a participation of 50 percent or more is sufficient to grant the state control over a corporate entity, this is not a necessary requirement: control can be achieved through a much lower equity participation and is not even limited to equity. For example, in a number of countries, governments have golden rights with a minority participation with the power to outvote other shareholders and directly influence the decisions of a firm.

To capitalize on the availability of shareholding information, and acknowledging that control is beyond majority ownership, we are setting the threshold for state participation at 10 percent to proxy government control. A 10% threshold for state shareholding is proposed to capture companies “controlled” by the state. The 10% is proposed to allow to flexibly manage the risks of overestimating the number of SOE (in those cases in which the government remains a minority shareholder vis-à-vis large private sector ones) with those of underestimating it (in cases of public companies for which control can be exercised with a lower level of ownership). At the same time, a 10% threshold is low enough to facilitate the application of different robustness checks with respect to different levels of state participation (i.e. majority-owned, more than 50 percent; blocking minority, between 25 and 50 percent; and minority participation, between 10 and 25 percent), while at the same time is not as low as to a large number of companies in which the government might not have any level of control.<sup>16</sup> This expands the scope of previous work on SOE analysis to trace state presence in the corporate sector, which has often been limited to majority-owned enterprises.

In line with the existing literature and practice, the Global BOS database only includes entities that are legally independent. That is, an entity is not considered an SOE if it is a branch of another company that operates as a single legal entity or if it is a part of a public authority without any juridical status. The rationale for the definition is that a branch of another company without autonomous legal status would not have an independent balance sheet, hence would be “consolidated” by the company which it belongs to while a branch of a public authority would be consolidated within the public sector. It is worth to note, that under this definition, we exclude those non-legally independent entities such as parastatals or dependencies under Ministries that which could operate and potentially influence markets (e.g., fiber backbone networks managed by government ministries). The database also distinguishes between corporatized or non-corporatized SOE. An SOE is corporatized if it operates under the company law as any other private sector company, with the only difference being that the government is a direct or indirect

> 14 It excludes non-profit institutions and government units (see paras 2.30-31 of the GFSM).

> 15 As established by the IMF (2020), although there are different national legal definitions of SOEs, there are three common elements to identify an SOE: it is controlled by the government, it is a legally separate entity from its owners, and it engages in market production and commercial activities.

> 16 The 10% threshold is proposed as a proxy of control. Since control cannot be measured ex ante and can be linked to other ways of influence (e.g., golden rights, ability to influence the nomination of the board members), the state participation is used as an indicative variable of control. The threshold of 10% participation was determined after several robustness checks such that it balanced the trade-off between omitting companies with possible ability to influence while excluding companies in which the participation obeys to portfolio or diversification strategies. When testing different levels of participation under 10%, the results indicated that most of the companies were related to mutual funds and international investors (e.g., Blackrock). On the opposite side, when exploring thresholds over 25%, the risk of omitting companies with government participation was higher. After several exercises, the 10% threshold was robust enough to minimize the inclusion of companies with participation under the approach of portfolio investments, while allowing to capture large companies below blocking minority (e.g., Lufthansa). This comprehensive approach allows to do robustness and sensitivity analysis such that if the economic assessment of the policy agenda requires only the subset of companies with minority participation (10%-24%), blocking minority (25% or more), the BOS database offers a systematic variable to do so.

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