State ownership and firm performance: New evidence from Europe

Abstract

This thesis investigates the effect of state ownership on firm market valuation, profitability, and stock returns in Europe over the period from 2000 to 2023. Expanding upon prior literature, we extend the analysis into the 2020s and incorporate the effect of the Covid-19-induced stock market decline. Using a dataset comprising 421 state-owned enterprises (SOEs) and 4,039 privately-owned enterprises (POEs) across 23 European countries, representing a total of 54,787 firm-year observations, we offer a comprehensive, continent-wide perspective on the impacts of state ownership.

Applying an ordinary least squares (OLS) framework, we document a 3.1% lower valuation for SOEs relative to their privately-owned counterparts. This valuation discount is robust across Europe, with consistent regional patterns of lower SOE valuations. Similarly, we find a negative effect on profitability, documenting a 1.4 percentage points lower return on assets for SOEs. However, during the Covid-19 market downturn, SOEs experienced cumulative stock returns that were 2.2 percentage points higher than those of non-state-owned firms.

Our findings suggest that while state ownership provides downside protection during financial crises, it may be less advantageous compared to private ownership during more stable periods. To the best of our knowledge, this is the first study to simultaneously examine valuation, profitability, and stock market returns within a single European sample.