This study aims to investigate the corruption and collusion problems occurring
in the reforms of state-owned enterprises in China, and to analyze how this problem
affects the performance of state firms. Using the idea of principal-supervisor-agent
relationships, we analyze the decay of officials control over state-owned enterprises
resulting from the change that employees, managers and the public are now allowed
to hold shares of state-owned enterprises, and they can claim the residual rights of
the enterprises. From our analysis, the corruption and collusion between officials
and managers may not become less serious. The performances of state-owned
enterprises will not be improved even after the introduction of the shareholder system.
We use a game-theoretical model involving public, government officials and
enterprise managers, focusing on political considerations to study the effect of
ownership structure of state-owned enterprises.