of indirect ownership is more ambiguous.<sup>22</sup> We test this potential relationship to address this important empirical question.<sup>23</sup> We argue the government’s ability to influence strategic and managerial decisions of BOSs is higher when it acts as a direct owner, whereas it may diminish as the state has participation through other entities or chain of entities. For instance, when acting as a direct shareholder, the government can have voting rights and exercise the decision powers of the board, which then can be reflected in different risk-taking decisions and financial outcomes of the firm.

Therefore, we explore how the degree of proximity to the public authority as a shareholder can explain differences in performance among BOSs. For this purpose, we create an indicator of the degree of proximity to the state based on the ownership structures provided by the WB BOS database. We differentiate between BOSs owned directly by the government (i.e., public authority) and those in which it holds participation through another firm or set of firms. For the latter, we identify how many firms -denoted as layersparticipate in the ownership path and differentiate among BOSs with 2, 3, and 4+ layers of ownership (Table 13).<sup>24</sup> _<u>Table 13. Degree of proximity to the state</u>_

|**Category**|**Definition**|
|---|---|
|**Direct ownership**|Firms owned by a central or subnational public authority with 10% or more<br>participation.For instance,Ministry of Finance owns25% of firm A.|
|**Indirect (2 layers)**|The state is an indirect owner through another firm/entity. In this case, B is<br>an indirectly owned BOS as the firm A (with 25% direct participation of the<br>MoF) owns 10% or more of company B.|
|**Indirect (3 layers)**|The state is an indirect owner through ownership links that relate three firms.<br>In this case, C is an indirectly owned BOS if the firm B owns 10% or more<br>of company C, which is owned (by 10% or more) by company A, which is<br>owned by the state. So, MoF owns A, which owns B, B owns C. Therefore,<br>C owned by the government through at least 3 layers of ownership.|
|**Indirect (4+ layers)**|Firms indirectly owned by the state such that four or more firms are<br>identified in the ownership path that connects the firm D with the Public<br>Authority. For example, Public Authority owns A, which owns B, which<br>owns C, and it owns D. D is indirectly owned by the government as it is<br>connected to a Public Authority through a chain of four (or more)<br>participatedfirms.|

Source: Author’s elaboration using World Bank’s BOS database Results in Table 14 are indicative of indirectly owned BOSs being associated with better performance results when compared to directly owned BOSs. As the distance from the public authority increases, BOSs appear to achieve better performance outcomes. Compared against directly owned BOSs (reference category), column (1) indicates that indirectly owned BOSs are 28% more productive.<sup>25</sup> When the degree of separation from the state increases, which we consider as a proxy of autonomy,<sup>26</sup> BOSs seem to perform relatively better achieving up to 62% more revenues per worker (labor productivity) when there are 4 or more layers between the BOS firm and the public authority who exercises the ownership rights. Similarly, the results suggest that further separation from the public authority is associated with better profitability up to 4.2 percentage points (column 2) higher and up to 9 percentage points higher returns of investments

> 22 (Okhmatovskiy, 2010) suggests that indirect state control may still give access to state resources but reduce the negative governance effects arising from direct shareholding.

> 23 For this assessment, we restrict the analysis to compare among BOS as we do not have the ownership structure of private counterparts in the WB BOS database.

> 24 To illustrate the difference, A is directly owned by the state if the direct shareholder corresponds to a Public Authority (denoted as such in ORBIS). On the contrary, B is indirectly owned, if it is participated by company A, which is owned by a Public Authority. The entity type is built from the ORBIS entity type vintage files.

> 25 The interpretation of the coefficients requires the Log−Lin transformation such that the average relationship is estimated as (exp(β1) −1) ∗ 100 = (exp (0.247)-1) *100= 28.01%.

> 26 It means more layers of ownership separate the entity from the public authority.

20