Another strand of the literature sustains that firms with state participation underperform vis-à-vis private peers. It argues that state ownership poses important challenges for a firm performance, particularly when measured in terms of profitability as it is often paired with social mandates such as employment protection and provision of public goods, which are not necessarily aligned with profit maximization behavior (Sun, Zhang, & Li, 2005). Evidence suggests firms with state ownership are more financially leveraged, more labor-intensive, and less profitable (Dewenter & Malatesta, 2001). Furthermore, several studies find that state participation can impact performance as the state can influence strategies resulting in less risk-averse behavior, which ultimately impacts profitability, returns to capital (Dollar & Wei, 2007), R&D investments, and internationalization plans (Tihanyi, et al., 2019).

Nonetheless, most empirical studies are country-specific. A vast set of studies are found on China (Dollar & Wei, 2007), (Chun, 2009), (Lu, Siu, Au, & Leung, 2009), (Amighini, Rabellotti, & Sanfilippo, 2013), (Shahab, Ntim, & Ullah, 2019), (Chen, Xie, & Van Essen, 2021). Additional studies that find a negative relationship between state ownership and firm performance are found on the Russian Federation (Abramov et al. 2017) (Liljeblom, Maury, & Hörhammer, 2020) and Malaysia (Isa & Lee, 2016), highlighting decreasing returns on assets in Greece (Halkos, 2002), and lower productivity in Türkiye (Zaim & Taskin, 1997), among others.

Other studies have approached a similar question through a sector-specific focus analyzing the role of state ownership in the financial sector (Cornett, Guo, Khaksari, & Tehranian, 2010), stateowned commercial banks (Panizza, 2021), natural monopolies or regulated oligopolies (Vining & Boardman, 1992), and network sectors (Bogart & Chaudhary, 2015). Fewer studies provide a cross-country and cross-sector analysis, especially in competitive sectors, which are particularly relevant for private-sector development. Some studies on competitive sectors include Funkhouser & MacAvoy (1979), Boardman & Vining (1989), and Picot & Kaulmann (1989). Some recent studies with firm-level data across countries include Dewenter & Malatesta (2001), Kabaciński, Kubiak, & Szarzec (2020), Phi, et al., (2019), IMF (2019) and Le (2021).

## **3. DATA SOURCES**

The data employed for the analysis corresponds to a combination of two firm-level datasets: (i) the World Bank Businesses of the State (BOS) database (Dall'Olio, et al., 2022), and (ii) the Bureau van Dijk (BvD) ORBIS financial module.

# 3.1 World Bank Businesses of the State (BOS) database

First, we use the World Bank Global Businesses of the State (BOS) database that provides firmlevel information on companies in which the state holds 10 percent or more direct and indirect participation. Although there is no academic consensus on the definition of state-owned enterprises (SOEs), they are often associated with directly and fully or majority-owned firms by the state.<sup>4</sup> In this paper, we cover a much broader set of entities to capture other channels of state ownership including minority and indirect ownership following the WB BOS definition (Dall'Olio, et al.,

> 4 The SOE definition can vary across countries depending on the different legal forms (e.g., corporatized vs. non-corporatized, level of participation (%)), and local definition of control.

5