Government department merger, perception of administrative barriers, and corporate investment: Evidence from China's state administration for market regulation

Abstract

We use the government department merger (GDM) reform in 2018 as an exogenous shock to empirically investigate the impact of government department structure on the firm's perception of administrative barriers. We document that GDM significantly reduces firms’ perception of administrative barriers. Further analysis indicates that promoting market competition and improving the business environment are two potential channels. Finally, the effect of GDM is more pronounced in samples with low market competition positions, high rent-seeking costs, and non-political connections. Our paper indicates the structure of government departments has a profound impact on firms’ behavior.