| Abstract: |
In Japan, many local mixed enterprises owned and operated jointly by local
governments and private sectors had been established from the late 1980’s to
the early 1990’s in order to provide public services more efficiently. At
present, in Japan, many local mixed enterprises are confronted with a serial
fiscal crisis. In 2007, the national government enacted the Local Public
Finance Reconstruction Law and started to lead local mixed enterprises and
local governments to achieve fiscal soundness. In addition to local
governments, mixed enterprises have to make an effort to operate more
efficiently. However, we believe that local mixed enterprises lack the
incentives to manage more efficiently because of the governance structure.
Firstly, as local mixed enterprises are owned by local governments, they can
procure government-guaranteed funds and are able to raise capital more easily.
Also, if business conditions of enterprises worsen, local governments give
subsidies to bail out ailing enterprises. Managers do not have to worry about
going bankrupt and might continue to carry out inefficient projects. Secondly,
if managers are from local governments, or if the majority of the board
members are local government officials, they might supply services without
putting stress on profit. Therefore, it is possible that the governance
structure of local mixed enterprises is the important factor that determines
their performance. In this paper, we study the link between the performance
and the governance structure in local mixed enterprises. |