The COVID-19 pandemic and the related containment measures are putting companies around the world in financial difficulty. The size of the shock is unprecedented – the OECD estimates that the direct impact of the containment measures amounts to 20-30% of GDP (OECD, 2020[1]). Sectors particularly affected by the containment measures include services, especially tourism and services requiring direct interaction with clients, construction and parts of manufacturing, such as motor vehicles. The immediate impact of these measures will have knock-on effects through backward and forward linkages in value chains, both domestic and across borders, and their magnitude will depend on the duration and extent of the confinement measures.

To prevent a systemic economic collapse and support the recovery, governments are rolling out a vast array of measures aiming at supporting ailing companies. Support measures include broad tax relief, wage subsidies, grants, preferential loans and loan guarantees (COVID policy tracker). In particular, governments are also taking equity stakes in distressed companies or may be considering whether to do so. Examples include airline carriers in Italy and the Nordic countries, or the French automotive industry.

The COVID-19 pandemic may, therefore, result in increased state ownership or control of enterprises. This may take place through various financial interventions, including equity buy-outs, debt-equity swaps, equity injections, the granting of state loans eventually converted into equity, and uncompensated expropriations. Such interventions tend to target companies whose failure could pose a strain on the economy, for example by increasing unemployment, interrupting essential transport connections, jeopardising the provision of crucial services or products, or obstructing access to finance. Government interventions may also be implemented to prevent adverse impacts on competition or, where the possibility of a foreign take-over arises, to address concerns about national security.1

Increasing state ownership in times of crisis is often done as an emergency measure, leaving little time for a careful economic assessment. Countries that already enforce high standards of governance on their state-owned enterprises (SOEs) may be better prepared to anticipate and address the implications of such government intervention, while those that lack important safeguards may incur high costs. Lessons from past nationalisations, in particular from sectors such as air transport and the automotive industry, combined with evidence on the impact of good governance of SOEs, can provide guidance on how best to design these interventions and prepare in advance for exiting from them.

State ownership is already extensive

Globally, SOEs have been among the largest and fastest expanding multinational companies in the past two decades. However, precise cross-country evidence on the actual scope of SOEs is relatively scarce and depends on the definition of SOEs employed (Capobianco and Christiansen, 2011[2]). Kowalski et al., 2013[3] show that 10% of the 2000 largest globally-listed firms in 2011 were majority state-owned. A recent IMF assessment argues this share has doubled to 20% over the past decade and that assets of SOEs around the world are worth USD 45 trillion, equivalent to half of global GDP. Most of the increase in the global role of SOEs comes from emerging-market economies, whereas in advanced economies, the importance of SOEs has been relatively stable (IMF, 2020[4]).

The OECD Product Market Regulation (PMR)2 database collects information on state control (defined as when governments hold, either directly or indirectly through a publicly-controlled company, the largest single share of a firm’s equity capital) across OECD countries and key industries, showing that governments control firms that operate commercial activities in a significant share of sectors (OECD, 2019[5]). The latest vintage shows in which sectors SOEs are present in OECD countries (Figure 1).

In OECD countries, SOEs are mostly present in several upstream sectors, such as energy, rail transport, finance and telecoms (Table 1), often argued by governments to be of “strategic” importance to the economy. Most of these sectors are characterised by the presence of one or more network components that are natural monopoly and, hence, cannot be open to competition. Some also provide important public services, the provision of which may entail loss-making activities. These sectors have for a long time been dominated by state monopolies, though over the past several decades, progress in regulation and technology have allowed for a gradual opening-up to competition and privatisation. Instead, most manufacturing sectors, including the manufacturing of motor vehicles, their parts and accessories, have low incidence of state-controlled companies, with only 7 OECD governments not controlling firms in the sector. In passenger air travel, the state controls companies in only 10 OECD countries.

As a result of the COVID-19 linked interventions, state ownership is likely to increase. State ownership can be a source of distortions to competition and trade3 as well as of political interference in the running of these companies, especially in countries where state ownership is extensive. Such distortions can have negative economic consequences in the sectors concerned, such as lower levels of productivity and innovation, poorer quality of goods and services and higher prices. This poorer performance can have knock-on effects on downstream sectors and, hence, on the economy as a whole (Égert and Wanner, 2016[6]; Bourlès et al., 2013[7]). For this reason, the OECD has developed a set of guidelines (from here on, the 2015 OECD Guidelines) that specify the conditions that the corporate governance of SOEs should meet to ensure that they operate in a sound competitive and regulatory environment conducive to economic growth (OECD, 2015[8]) (Box 1).

A snapshot of the level of compliance with some key features of the 2015 OECD Guidelines on the governance of SOEs is provided by one of the OECD PMR indicators. This indicator summarises information on: i) the level of SOEs’ exposure to the same market discipline as their privately-owned competitors; and ii) the extent to which existing legal rules protect SOEs from political interference in their business decisions (Figure 2).

This indicator measures the quality of SOE governance rules in these two areas. Two caveats should be noted. First, the information used to build the PMR indicators captures “de jure” policy settings and not whether these laws are actually enforced. Second, the indicator on the governance of SOEs covers a subset of the principles included in the 2015 OECD Guidelines, and hence even in countries with a good score in the PMR indicator, a detailed analysis may show further room for improvement. Moreover, admittedly, the impact from the governance of SOEs on overall economic performance is likely to be more moderate in countries where the presence of SOEs in the economy is more limited (Figure 1).

A simple exercise can be used to look at the performance of SOEs versus privately-owned firms, based on firm-level data for the airline and motor vehicle manufacturing sectors. There are several good reasons to focus on these two sectors. First, they are among those most adversely affected by the COVID-19 lockdown measures (OECD, 2020[1]). Second, governments often tend to argue that these sectors are of considerable economic importance – as evidenced in the context of past and more recent, COVID-19 related nationalisation discussions.

The comparison of past firm performance in these two sectors suggests that SOEs tend to have significantly lower returns on equity (Annex Table A.1).4 However, in countries where the governance of SOEs is strong, as measured by the OECD PMR indicators, SOEs do not seem to perform worse than private firms (Figure 3). This correlation echoes the finding in (Baum et al., 2019[9]), who show that SOEs perform as well as privately owned enterprises in countries where corruption is perceived to be low (Kaufmann et al., 2010[10]).

This illustrative exercise identifies a correlation between ownership, governance and performance. It also covers two sectors over a limited time period and does not distinguish the reason for state ownership. There may be particular reasons why SOEs performance seems to be generally weaker than that of private companies. For example, as firms are often nationalised because of severe financial distress, they may be expected to continue to perform poorly for a while, regardless of how well they are managed. SOEs may also be tasked with pursuing public policy objectives, such as providing services that may be considered of economic and or social relevance, but which are not profitable. Airlines, for instance, may be required to provide flights which governments consider necessary, either to ensure connections with remote or poorer areas of their countries or to support tourism and other economic activities in specific locations. Obligations of this kind do not contribute to the profitability of the enterprise and may even increase its costs.

The 2015 OECD Guidelines on corporate governance of SOEs provide concrete and detailed recommendations on the best practices countries should adopt to ensure that SOEs operate in a sound competitive and regulatory environment conducive to economic growth. The OECD PMR indicators shed light on the level of compliance with some of the principles included in the OECD Guidelines and identify some key areas where OECD countries could improve their SOE governance. Crucially, de facto enforcement of corporate governance rules should be considered as important as improving the laws themselves.5

The PMR indicator on the governance of SOEs assesses to what extent SOEs that undertake commercial activities benefit from any legal or financial advantages over their privately-owned competitors. Overall OECD countries tend to ensure such competitive neutrality, though there is still some scope for better aligning with OECD best practices in this area (Table 2). For example, there are still countries where some SOEs operating in competitive markets benefit from a legal status that may shield them from the (full) application of private company law. Similarly, in most OECD countries accounting or legal separation between commercial and non-commercial activities could be imposed more extensively on all SOEs that have to fulfil public service obligations to avoid any distortions caused by possible cross-subsidies.

Another principle of the 2015 OECD Guidelines, which is reflected in the PMR indicator, is that the public authorities should not be involved in the direct management of SOEs and should not interfere with their business decisions. The experience of Alitalia, the Italian air carrier, provides a well-documented example of successive interventions and the challenges associated with maintaining an arm-length relationship between the state owner and company management contributing to the company’s problems throughout the 1990s and 2000s (EC, 1997[11]; EC, 2001[12]) (Beria and Scholz, 2010[13]) (Beria, Niemeier and Fröhlich, 2013[14]).

Indeed, many OECD countries could better ensure that the appropriate legal conditions are in place to shield SOEs from undue political influence (Table 3). For example, in many countries public authorities, rather than the board of the firm, select the Chief Executive Officer (CEO)6. In many countries, there are still sectors in which there is no separation between sector regulators and the bodies that exercise ownership rights in SOEs.

The United States’ Troubled Assets and Relief Programme (TARP) is an example of a programme promoting financial stability and economic growth as state ownership rationale (Box 2). The arm’s-length approach to state ownership was implemented by not exercising voting rights on day-to-day business matters (in any case limited for preferred stocks) and not instructing the appointed board members on how to vote.

The PMR indicator on SOE corporate governance focuses on a subset of the key principles set out in the 2015 OECD Guidelines (Box 1) (OECD, 2015[8]). Other principles, while not included in the indicator, can also play an important role in informing policy decisions in response to the COVID-19 crisis. In particular, they highlight good practices in communication of objectives pursued through taking equity in firms, transparent exit strategies and subjecting SOEs to the same high quality accounting, disclosure, compliance and auditing standards as publicly listed companies.

In the context of an economic crisis, equity injections may be justified on the ground that firms are facing financial difficulties that cannot be easily addressed through recourse to capital markets. Interventions should, therefore, target firms whose financial distress is related to the crisis, and which are likely to return to profitability once economic conditions improve.7 On the other hand, saving ailing firms interferes with effective market selection mechanisms and creates long-term economic distortions that can outweigh short-term benefits to the economy. One way to avoid this outcome is to require target firms to agree on detailed plans on how to restore viability. Such plans need also to decide the distribution of losses among shareholders and the various stakeholders, such as creditors, management and employees.

By requesting these plans, governments can contain the associated moral hazard problems and avoid creating incentives for companies to take riskier decisions in the future and expect the government to intervene in case of failure. For example, under the TARP automotive sector bailout in the United States, government equity injections were combined with bankruptcy proceedings and existing shareholders lost their investment (Goolsbee and Krueger, 2015[15]). Secured creditors in Chrysler saw their debt severely restructured. Most of the unsecured creditors in both GM and Chrysler lost their claims altogether, with the exception of United Auto Workers pension plans, which were partly paid off. Employment was significantly reduced and top management was replaced.

Transparency about the reasons for the state taking equity in a company is equally important, because it implies that when the conditions that justify state ownership cease to exist, the need for state ownership should be reconsidered.8 Often the argument that a firm is of “strategic importance” to the economy is used to justify the intervention. However, this concept is not well defined (Ding and Dafoe, 2020[26]). Hence governments should clarify what is “strategic” about the company that makes it worth saving with public money. In addition, unless the state has a clear public policy rationale for keeping control of the firm, the stake in the firm should be relinquished as soon as market conditions permit.9

For this reason, some countries regularly review government’s ownership rationales. In Germany, for example, the Ministry of Finance submits to Parliament a bi-annual report on the reduction of government holdings (OECD, 2015[17]). In Norway, the government regularly updates Parliament on the objectives of state ownership and has conducted privatisation “readiness reviews” for all SOEs (OECD, 2019[18]). If such an automatic regime is not in place, an effective way to ensure a timely exit strategy is to envisage from the start a review of the intervention.

A carefully designed exit strategy can also help to minimise the cost of the intervention for the taxpayer (OECD, 2020[19]). For example, the TARP legislation required the government to maximise returns on the sales of equities, but left some leeway, as it did not specify the price, process or timing (Box 2). The Treasury’s publicly stated goal was to exit TARP investments “as quickly as possible”, while maximising returns, promoting financial stability and minimising market disruption. For example, the exit from the automotive sector consisted in restarting the public trading of General Motors’ stock through an initial public offering and a debt repayment, combined with a negotiated buy-back of the Treasury’s stake in Chrysler. In addition, the TARP support often took the form of convertible debt, providing recipients with a grace period to resolve problems, while giving the taxpayers a share in the upside associated with a successful restructuring.

When designing the exit strategy, the role of independent advice is also critical. Independent advisors can help ensure that the best value can be obtained from the sale (OECD, 2019[18]). Appropriate valuation also serves to measure post-privatisation outcomes. An independent commission, or steering group, qualified to approve the valuation can help ensure objectivity.10

A clear and well-structured separation of responsibilities is also key more generally. For example, the TARP programme was overseen by several agencies and Congressional bodies, established by multiple legislative acts and with largely overlapping responsibilities. This led to inefficient duplications and excessive reporting requirements on TARP staff and resulted in different and often incompatible recommendations (Massad and Kashkari, 2019[20]).


[9] Baum, A. et al. (2019), “Governance and State-Owned Enterprises: How Costly is Corruption?”, IMF Working Paper, No. 19/253, IMF, Washington D.C., (accessed on 22 April 2020).

[14] Beria, P., H. Niemeier and K. Fröhlich (2013), How liberalisation can go wrong: The case of Alitalia.

[13] Beria, P. and A. Scholz (2010), “Strategies for infrastructural development of airports. A comparison between Milan Malpensa and airport and Berlin Brandenburg International airport”, Journal of Air Transport Management, Vol. 16, pp. 65-73.

[7] Bourlès, R. et al. (2013), “Do Product Market Regulations in Upstream Sectors Curb Productivity Growth?: Panel Data Evidence for OECD Countries”, The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1750-1768, December.

[2] Capobianco, A. and H. Christiansen (2011), “Competitive Neutrality and State-Owned Enterprises: Challenges and Policy Options”, OECD Corporate Governance Working Papers, No. 1, OECD Publishing, Paris,

[26] Ding, J. and A. Dafoe (2020), The Logic of Strategic Assets: From Oil to AI, (accessed on 29 April 2020).

[12] EC (2001), Commission Decision of 18 July 2001 concerning the recapitalisation of the company Alitalia (notified under document number C(2001) 2349,

[11] EC (1997), 97/789/EC: Commission Decision of 15 July 1997 concerning the recapitalization of the comany Alitalia,

[6] Égert, B. and I. Wanner (2016), “Regulations in services sectors and their impact on downstream industries: The OECD 2013 Regimpact Indicator”, OECD Economics Department Working Papers, No. 1303, OECD Publishing, Paris,

[15] Goolsbee, A. and A. Krueger (2015), A retrospective look at rescuing and restructuring General Motors and Chrysler,

[4] IMF (2020), State-Owned Enterprises: The Other Government, IMF.

[21] Kalemli-Ozcan, S. et al. (2015), “How to Construct Nationally Representative Firm Level data from the ORBIS Global Database?”, NBER Working Paper, No. 21558.

[10] Kaufmann, D. et al. (2010), The Worldwide Governance Indicators: Methodology and Analytical Issues, (accessed on 27 April 2020).

[3] Kowalski, P. et al. (2013), “State-Owned Enterprises: Trade Effects and Policy Implications”, OECD Trade Policy Papers, No. 147, OECD Publishing, Paris,

[16] Lucas, D. (2019), “Measuring the Cost of Bailouts”,

[20] Massad, T. G., & Kashkari, N. T. (2019). Implementing TARP: The administrative architecture of the Troubled Assest Relief Programme. In B. Bernanke , T. Geithner, H. Paulson, & N. Liang (Eds.), First Responders: Inside the U.S. Strategy for fighting the 2007-2009 Global Financial Crisis. Yale University Press.

[19] OECD (2020), Equity injections and unforeseen state ownership of enterprises during the COVID-19 crisis,

[1] OECD (2020), Evaluating the initial impact of COVID 19 containment measures on economic activity,

[18] OECD (2019), A Policy Maker’s Guide to Privatisation, Corporate Governance, OECD Publishing, Paris,

[5] OECD (2019), “Measuring distortions in international markets: the aluminium value chain”, OECD Trade Policy Papers, No. 218, OECD Publishing, Paris,

[31] OECD (2019), “Measuring distortions in international markets: The semiconductor value chain”, OECD Trade Policy Papers, No. 234, OECD Publishing, Paris,

[32] OECD (2017), OECD Economic Surveys: Slovenia 2017, OECD Publishing, Paris,

[8] OECD (2015), OECD Guidelines on Corporate Governance of State-Owned Enterprises, 2015 Edition, OECD Publishing, Paris,

[17] OECD (2015), State-Owned Enterprise Governance: A Stocktaking of Government Rationales for Enterprise Ownership, OECD Publishing, Paris,

The analysis underlying Figure 3 focuses on exploring the relationship between financial performance and SOE governance for the airline passenger transport sector (labelled “Airlines” below) and motor vehicle manufacturing (“Automotive”), NACE codes 5110 and 2910, respectively. There are several good reasons to focus on these two sectors. First, they are among those most adversely affected by the COVID-19 lockdown measures. Second, governments often tend to argue that these sectors are of considerable economic importance – as evidenced in the context of past and more recent COVID-19 nationalisation discussions. In addition, both are relatively well covered in the ORBIS database, from which firm-level data ownership data and financial performance is obtained.

This ORBIS data has been cleaned and transformed as follows:

  1. 1. The analysis focuses on firms that are domestically owned and therefore drops any instances where the shareholder and the subsidiary are from different jurisdiction. The ultimate owner of a firm is defined as the shareholder with 25% or greater stake in the firm. SOEs are thus those firms for which government entities are the ultimate owners.

  2. 2. Following (Kalemli-Ozcan et al., 2015[21]), the financial data is cleaned by keeping unconsolidated accounts for most countries and dropping observations for which there are negative values on employment or wage bill, tangible fixed assets, gross output and materials.

  3. 3. Outliers are removed for returns on equity (ROE) exceeding 80th percentile (50% return) and lower than the bottom 15th percentile (-20% return).

The sample contains 3 505 observations over the period 2010-2017. For each year, there are about 430 firms on average with a 4% occurrence of state-owned enterprises. It covers all OECD countries except the United States, as the PMR indicator on SOE governance is not available for this country.11

Data on the quality of the governance of SOEs is derived from the OECD Product Market Regulation database and is collected at the country level reflecting 2018 policies.

The distributions of ROE for SOEs and privately-owned enterprises (POEs) are compared using the Kolmogorov-Smirnov equality of distribution test. For the full sample, the difference in returns is significant between the two types, indicating that POEs have significantly higher ROEs than SOE. The test is then conducted on the sample of SOEs only conditional on whether they fall in a weak governance or strong governance environment as determined in the OECD PMR 2018 indicators. The test does not claim to identify a causal relationship.

The sample was modified along several dimensions to test the robustness of these results (Annex Table A.1). To assess whether the results are driven by the type of financial accounts that were retained, all unconsolidated accounts were removed and only the consolidated accounts kept. The data still finds that POEs outperform SOEs, but the result for the performance of SOEs conditioned on the quality of their governance is no longer significant. One explanation is that when considering consolidated accounts only, the sample shrinks to one third of the full sample, thus including much less SOEs.

Similar equality of distribution tests were carried out by limiting the sample to air transport sector only and by reducing the time interval so as to obtain a more balanced sample. In both cases, the two results hold.

Another robustness check tested whether the size of firms matters. Dropping firms that are in the bottom 25th percentile of the distribution, the result holds for both POEs outperforming SOEs and on good governance delivering higher ROEs among SOEs is maintained. Another robustness test focused on a reduced sample of countries; keeping only those that have the same incidence of SOEs and POEs. Again, the results do not change.

Finally, an alternative indicator of performance was used on the full sample. Profit margin measures the amount of profit accruing to a firm from the sale of products and services, and it provides an indication of efficiency, since it captures the amount of surplus generated per unit of the product or service sold. Profit margins are higher for POEs but not significant different for SOEs conditional on the quality of governance.


← 1. Various countries have introduced or modified foreign direct investment (FDI) screens to this purpose. For example on March 25, 2020, the EU Commission issued guidelines to coordinate the EU Member States’ approach to FDI screening with the aim of protecting EU’s critical assets and technologies from becoming controlled by foreign investors during the market disruption caused by the COVID-19 pandemic.

← 3. For more details on issues related to the relationship between state investment in firms and the level playing field for international competition see (OECD, 2019[31]).

← 4. Recent OECD work on the semiconductor value chain has also found government-invested firms to perform relatively worse than their private counterparts (OECD, 2019[31]).

← 5. For example in Slovenia, which ranks very favourably in terms of the PMR indicator on the governance of SOEs, SOEs have a high share of politically affiliated supervisory board members (OECD, 2017[32]).

← 6. A chief executive officer is the highest-ranking person in an enterprise, who is ultimately responsible for all major managerial decisions.

← 7. The EU commission, which has temporarily enabled recapitalisation aid to undertakings facing financial difficulties due to the COVID-19 outbreak, has stressed that such aid can be “highly distortive for competition between undertakings”. Hence, it has stated that it should only be granted “if no other appropriate solution is available and must be limited to enabling the viability of the company”. See .

← 8. Transparency is also important in ensuring the legitimacy of and public acceptance of support to certain sectors or firms in the crisis. See Government Support and the COVID-19 pandemic, OECD Policy Brief, OECD 2020, available at:

← 9. The temporary framework introduced by the EU commission to enable recapitalisation aid also requires beneficiaries of these interventions are required to develop an exit strategy within a precise timeframe. See

← 10. For example, in the case of TARP, third party advisors used by the Treasury to provide industry expertise, to evaluate restructuring strategies for the car companies and to execute divestment strategies were not allowed to serve as underwriters or agents for the sales of securities (Massad and Kashkari, 2019[20]). However, this is not always the case in practice. For example, the 2008 privatisation of Alitalia to CAI suffered from precisely such a conflict of interests: BancaIntesa, the privatisation adviser, was allowed to choose CAI as the best buyer of Alitalia, even though it held a significant share in CAI at the time.

← 11. At the time of publication, the PMR data collection for the United States was still ongoing.


This paper is published under the responsibility of the Secretary-General of the OECD. The opinions expressed and the arguments employed herein do not necessarily reflect the official views of OECD member countries.

This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

© OECD 2020

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