Partial privatization, corporate governance, and the role of state-owned holding companies

The success of privatized firms has been of interest to researchers in economics. In this study, we examine the role of a state-owned holding company (SOH), serving as a monitoring arm of the government to track the performance of the government-linked companies (GLCs). In the case where state assets are partially privatized, the holding company serves as a useful institution to mitigate the agency problem involving the government as the principal and the GLCs as agents. To play this role effectively, the holding company itself must be respected and well governed. In the first part of this paper, a simple framework is presented to put in context the specific role of the SOH and its relationship with the various stakeholders. Next, we turn to a case study, the Temasek Holdings Limited of Singapore, to gain a better understanding of the style of corporate governance of a holding company.