In this study the impact of government intervention toward governance and performance of Indonesian state-owned enterprises was investigated, using 114 of total 141 enterprises from year 2006 to 2009 (456 observations) as sample. The study is cross-sectional to estimate how issues of intellectual property assignment, soft budget constraint and political embeddedness affect the economic performance of enterprises. Form of SOEs, number of ownership, government loan, capital injection, number of government officer seat in board of commissioners, as well as government assignment are assigned as government intervention proxies. On the other hand the firm performance is represented by ROA and ROE. The result shows that government ownership, government loan and government assignment have adverse impact to SOEs performance, on the other hand number of government officer on Board of Commissioner is the only intervention with favorable impact. The impact from the rest of government actions are unclear and need to be tested further. Finally, the paper concludes that the government intervention could be either good or bad depend on some other factors. The possibilities of the reasons are discussed

Keywords: Government Intervention, Performance, Indonesia, State-Owned Enterprises

1.Introduction

The importance of government intervention to the economy has become endless debate among the economist. In fact there is no single nation, even the most extreme among the pros and cons, pursues the pure economy with full or without government intervention. The difference is just the degree. The role of government in transition economies is undeniably critical, which is one of the common ways is through state owned enterprises (SOEs).

It is widely known that SOEs throughout the globe have been suspected as ill-governed business entities signified by such as high level of corruption, lack of transparency, as well as severe inefficient. Many market based economist believe that the main reason of such weaknesses is government intervention. Therefore they actively promote liberalization trough privatization of SOEs. In many cases, it can be one of requirements stipulated by the donor institution such as IMF or World Bank in granting financial help to troubling developing countries.

However, it may be not true for all cases. Some countries, such as Singapore and china, are example where government intervention doesn’t mean harm SOEs performance. Manageable government intervention toward SOEs can lead to excellent performance.