Abstract
This study examines the causal effect of government monitoring on the innovation of state-owned enterprises (SOEs). By exploiting an exogenous shock to SOEs caused by the establishment of the State-owned Assets Supervision and Administration Commission (SASAC) in 2003, our difference-in-differences estimates show that government monitoring effectively promotes SOEs' innovation, and this positive innovation-driven effect becomes more prominent in SOEs with lower initial governance quality, stronger policy intensity, and greater innovation intensity. Furthermore, the underlying mechanisms are that this reform helps reduce corporate policy burdens and improve management efficiency. In addition, government monitoring promotes SOEs' patent quality, resulting in enables better performance and higher productivity. Taken together, our findings suggest that government monitoring can be vital to SOEs' innovation activities.
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