The Principle-agent Theory And The Reform Of State-owned Enterprises

Socialist market economy system has been set up in China, which combines public ownership with market economy system. The essence of the socialist system stipulates that public ownership plays a dominant role in the national economy, but market economy system requires that state-owned enterprises (SOEs) have status as equal as the enterprises with different ownership in the market. So the relationship between the owners and managers of SOEs must be the principle and the agent. And this relationship is the key point of the combination of the public ownership and market economy system.The principle-agent relationship came into being with the separation of ownership from managerial authority at the same time, which is inevitable in the-progress of economy. Naturally the principle-agent relationship exists in SOEs, which is determined by the properties of SOEs, not by the effect of division of labor and large-scale economy.The principle-agent problem of SOEs was solved unsuccessfully under the traditional planned economy system. The country has carried out a series of reform to solve it. The crux of the reform of SOEs is to solve the principle-agent problem and increase SOEs' efficiency for the fulfillment of the function of SOEs.The principle-agent relationship is a kind of contractual relationship. Complete principle-agent relationship includes three factors: the principle, the agent and the contract between them. So the principle-agent relationship should be analyzed from the three factors mentioned above. In western countries only the agent problem is discussed because their market economy system is both mature and sound, and the properties of the agent are simple. The complex properties of SOEs and immature market economy system determine that there are not only agent problem, but also principle problem and contractual problem in SOEs. The main innovation of this article is to analyze the principle-agent problem from the three factors comprising the principle-agent relationship in SOEs.After analyzing the principle-agent problem in SOEs precisely, we can conclude that it is immature socialist market economy system, imperfect management system of. state-owned assets and unsound corporate governance that impede us raising the efficiency of the principle-agent relationship in SOEs. So new reform should be carried out from these aspects.