Can Chinese state owned enterprises fulfill both social and corporate objectives?

In China, state governance in corporations serves the purpose of Communist party control over the political, social, and economic development and most importantly, stability of the country. Therefore, Chinese state owned firms have equally important corporate and social objectives. Both objectives must be controlled and managed well through the corporate sector in order for China to successfully advance its economy and preserve its political order. While the state governance relationship with performance of Chinese corporations is well studied, the state relationship with employment has little literature. Therefore, we propose that state governance will have effects on firm performance and employment. This study examines these relationships by panel regressions for a large sample of 2,536 Chinese publicly listed firms during 2001-2011. The results affirm a non-linear, concave relationship between state ownership and financial performance as measured by Tobin's Q. This relationship suggests private-governed and highly-state-governed firms have lower performance than mixed governed firms. Second, the results strongly indicate that state governance positively affects employment stability and number of employees. These results support the hypothesis that high employment is an objective of Chinese firms. After standardizing the dependent variable as the number of employees over assets, mixed control firms provide the least benefit in social performance. This finding is the opposite to their market performance. The mixed control firms perform poorly because they are more focused on financial performance. Moreover, they may not receive effective governance monitoring as neither private nor state firms has enough ownership to attend to social performance, and they face more ambiguity and conflict between firms and state objectives of profit maximization versus social maximization. --Leaf iii.