As well presented in (Kalemli-Ozcan, Sorensen, Villegas-Sanchez, Volosovych, & Yesiltas, 2015), ORBIS is a proprietary and entity-level global database constructed by the Bureau van Dijk (BvD) with the information collected from national business registries and statistical institutes (see Table A.1 in the annex for the full list of sources used by ORBIS). The simplest way to identify SOEs is through the Global Ultimate Owner (GUO25 or GUO50) variable available in ORBIS’s “Links” table. The GUO25 and GUO50 variables indicate the unique majority shareholder of an entity at a 25% or more participation level and at a 50% or more participation level, respectively. Each entity in the ORBIS database has at most one GUO25 and/or GUO50.<sup>30</sup> An entity may not have a GUO if no shareholder owns shares at or above the threshold level.

However, proxying SOEs as the firms whose Global Ultimate Owner (GUO) is a public authority is an unreliable source of information. The GUO variable allows to identify firms whose unique majority shareholder is a state or a government. However, this method of identification of SOEs is limited for the following reasons:

- **GUO25 only captures the highest shareholder at or above the 25 threshold level of participation** . GOU25 variables do not capture all the shareholders that satisfy the threshold requirements. For example, if a state or a government owns 25% of entity A, and a private firm also owns A at 26%, assuming all other entities have less than 25% of A’s equity, only firm B will be listed as firm A’s GUO25. As a result, firm A will not be included in the list of SOEs when the GUO25 is used as an SOE identifying variable even though it has 25% participation of the state.<sup>31</sup> In other words, the variable GUO25 misses all the firms owned by a state or a government at 25% or more when other shareholders have higher shares.

- **GOU25 and GOU50 suffer from the lack of completeness of ORBIS data, which results in a large share of firms being missed.** The GOU variable suffers from omission and measurement errors resulting from the completeness and accuracy of ORBIS data. In the former, it refers to companies that are operating in the markets but are not covered by ORBIS, whereas the measurement error is linked to firms that are incorrectly classified as private.

To fully capture the comprehensive list of directly and indirectly owned SOEs (i.e., SOE subsidiaries) we developed and implemented a new methodology which uses the information collected by ORBIS, complements it with other sources and elaborates it to fully capture the ownership of the state in the corporate sector. The steps for the identification of SOEs detailed in this methodology yield a more accurate count of SOEs globally. A detailed description of the functions of the algorithm is presented in section 5.

Even adopting a 25% threshold for state participation, our analysis shows that the GUO variable tends to significantly underestimate the real presence of the state as a shareholder in most of the countries analyzed. When comparing the number of SOEs directly owned by a government at 25% or above with those identified through the GUO25 variable in ORBIS for the same set of 60 countries, we find that on average, the Global BOS database quadruples the number of firms with state participation per country (see

> 30 Depending on the threshold (25 or 50) used in the GUO variable in ORBIS, it can lead to different “ultimate” owner entities. On the contrary, our methodology captures the full ownership structure of ownership using a lower threshold that allows to identify all paths with state participation to identify the ultimate shareholder accordingly.

> 31 This example considers both direct and indirect total shareholding by either a state entity or private firm.

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