The Ownership Boundary And Financial Strategy Orientations Of State-controlled Enterprises

Boundary is the result of game. Its expression is, within the limits established by the game of powers, to set up a stable "internal order". As unlike the existing literatures in which dividing ownership and corporate into two opposite parts, this paper, however, puts the political officials and agents into "political interests group" under the constraints of "political order" according to the real distribution of power in the state-controlled enterprises. The research focuses on the issue that how the "political interests group" sets up and maintains the "internal order".Firstly, this paper analyzes the social and political environment constraints and how the state-controlled enterprises operation. And then, it proposes an approach to allocate the power in State-controlled Enterprises. Finally, in order to maintain the stability of this "operating order", the issue of capital allocation should be addressed by State-owned Investors.The purpose of this paper is to provide a newly-view for addressing the question of the ownership boundaries of State-controlled Enterprises and the choice of State-owned capital, with the Enterprise Contract Theory and Resource-based Theory of Corporate Strategy. Transaction Cost Theory use "asset specificity" to explain transaction cost savings and Resource-based view use the "specific resources" to explain the source of organizational rents. When explaining the source of enterprise's value, the natures of the two theories are consistent to each other. The source of value determines the orientation of the capital investment strategy and the ownership distribution, which is important in studying ownership boundaries and financial strategy orientations. In this paper, State-controlled Enterprises are put into a realities context in which the enterprise and its key agents are all restricted by the socio-political surroundings. This study uses the factual analysis approach deducing the new theory from real cases of state-controlled enterprises, which are well-known facts or on-site interviews conducted by the author.Main contributions and innovations of this article are, first, from the perspective of the "political interests group", this paper analyzes the relationship between the leaders of the State-controlled Enterprises and the officials, which is called "Bureaucratic black box" in this article. Second, this paper proposes "controlled capital center view" from the view of state-controlled investors on the ground of the conventional framework of financial strategy.The conclusions are as follows:firstly, the stronger Asset-specific characteristic of the assets of State-controlled Enterprises determine the human capital property rights of the key agents. The reasons are, the leaders of the State-controlled Enterprises are component of the "political interests group" and they are "special officers" in bureaucratic system, and also possess effective control rights of the enterprises. Further more, as their positions come from the State's long-term investment and training, they should not be ownership, but can enjoy the "lifetime employment" and "national rent incentives". Hence, long-term relational contracts play an important role on maintaining "the order within political interest group" in order to prevent from quasi-rent dividing.Second, from the perspective of State-owned investors, financial strategic orientations of the State-controlled Enterprises are to safeguard the stability of "the order within political interest group". "Controlled capital center view" should be the suitable view of State-owned investors. They are expected to analyze the characteristics of state-controlled capital, the characteristics of its assets, and characteristics of productive organization, and then, to be selected with suitable financial management, capital raising and strategic asset investment orientations. The objectives are to maintain stability of long-term organizations rents, state rents and to lower the dependence on human capital and other factor elements.Finally, the adaptive efficiency, between the Ownership feature of State-controlled Enterprises and the existing political rules, will play an important role in the State-controlled Enterprises long-term performance increasing. Dealing with the overall private view of Neo-liberalism objectively, the State-owned investors should respect for the reality of corporate control rights, and establish the appropriate power-sharing form to adapt to our business model.