The Financial Performance of Norwegian State-owned Enterprises: An Empirical Analysis of the Oslo Stock Exchange

Abstract

This thesis studies the performance differences between state-owned enterprises (SOEs) and private-owned enterprises (POEs) on the Oslo Stock Exchange from 2015 to 2021. The thesis covers an accounting-based and a market-based analysis, each divided into a performance and determinant analysis. Prior research has documented underperformance of SOEs (Boardman & Vining, 1989). Therefore, this thesis aims to test this underperformance phenomenon, and find if the potential performance difference is due to state ownership or other factors. The thesis employs a variety of performance measures, including return on assets (ROA), return on equity (ROE), Tobin’s Q, cumulative abnormal return (CAR), buy-and-hold abnormal return (BHAR), and the Fama-French five-factor model. In deriving the abnormal returns, the raw returns are subtracted by the returns of the Oslo Børs all-share index (OSEAX), and weighted through the application of both an equally-weighted (EW) and value-weighted (VW) scheme. The determinants are evaluated through multiple regression analyses. The thesis finds contradicting conclusions of how state-owned enterprises perform relative to privately-owned enterprises and the benchmark. Firstly, the accounting-based performance analysis provides evidence of overperformance of SOEs compared to POEs, where the SOEs portfolio is less overvalued according to Tobin’s Q. Secondly, the market-based analysis evaluated by CAR, BHAR, and the Fama-French five-factor model provides evidence of underperformance of SOEs compared to POEs. Furthermore, the EW CAR and BHAR for SOEs show negative abnormal returns compared to OSEAX, while the VW CAR and BHAR show positive abnormal returns for SOEs. The results from the Factor model support the same conclusions. Hence, the performance analysis can conclude that the underperformance phenomenon is present in the Norwegian equity capital market when evaluating stock returns and Tobin’s Q but not for accounting ratios. The regression analyses find no significant evidence that state-owned enterprises underperform their privately-owned counterparts. Hence, the findings of performance differences between state-owned and private-owned enterprises are likely influenced by factors other than state ownership. The portfolio of SOEs contains value stocks that perform better than POEs from an accounting point of view but have not experienced as substantial growth during the period as many of the growth stocks included in the portfolio of POEs. Moreover, the findings suggest that SOEs are more exposed to agency problems due to inefficient monitoring where the state’s interests conflict with profit-maximizing.