PROFIT-SHARING AND FINANCIAL PERFORMANCE IN THE CHINESE STATE ENTERPRISES - EVIDENCE FROM PANEL-DATA

This paper examines the effects of incentives in employee remuneration on financial performance in a sample of Chinese state-owned enterpris es (SOEs) during the late 1980s and early 1990s. The estimates show th at bonus payments as a form of profit-sharing between employees and th e state have positive effects on both the total factor productivity an d profitability of the sample SOEs. Moreover, the actual level of bonu s payments is found to be lower than the optimal level which a competi tive firm would set to maximise profits. These results suggest that pr ofit-sharing introduced in Chinese state-owned enterprises as one of t he centrepieces of economic reforms over the last decade has been effe ctive.