64S. Murtinu et al.

is detrimental for firms, because these firms display a reduced innovation output in terms of patent production and patent citations.

2.3

The Effects of Government Ownership

In modern industrial economies, governments typically play a substantial role not only as regulators of private activity but also as owners of firms and industries. For example, the Chinese government has recently taken a stake and one board seat in Beijing ByteDance Technology Co. Ltd., a company that controls the platforms of ByteDance, which owns the popular video service company TikTok. Besides the conventional rationales for government ownership, such as national security, natural monopoly, and so on, public investment has also more recently been justified as a means of providing stable, long-term ownership to firms. Because government has access to the deep pockets of taxpayers, it is less likely than private owners to be constrained by short-term cash requirements and it can take large stakes, held for long periods. This size and stability can, in principle, support the monitoring of managers and lead to effective corporate governance (Chen et al., 2007; Ferreira & Matos, 2008; Shleifer & Vishny, 1986). Moreover, political owners may have key information about future policies, which can reduce the uncertainty faced by firms (Murtinu, 2021). However, government ownership can also stymie firm performance (Megginson & Netter, 2001) because political owners pursue political goals that are detrimental to firm value (Shleifer & Vishny, 1994). Indeed, the involvement of politicians in firm ownership and government, particularly when they play an active role, likely leads to actions and decisions that do not maximize value creation, even considering that government actors may prioritize different objectives from those of private actors. In technology industries, government ownership can also be used to control technological development and as a form of regulation, pushing firms to adopt technologies and business models that serve the state’s objectives instead of the firm’s. Regulation can also encourage state-owned or partially state-owned firms to engage in illegal shortcuts and corruption (Mudambi et al., 2013) to recover part of the value lost to excessive regulation and government intrusion (Zeume, 2017).

The overall evidence suggests that government ownership is associated with low governance quality (Borisova et al., 2012). Moreover, when government ownership translates into active governance (for example, in the form of golden shares), governance quality is further reduced. A recent example is given by the effects of robots on manufacturing productivity and employment in China (Jia et al., 2021). While robots lead to productivity and employment growth in private firms, this relationship does not hold in government-owned firms, which fail to make the necessary complementary investments in human and physical capital. Another