Central State-owned Enterprises Research Articles

Transition of China’s global energy investment: Decarbonization, dispersion and denationalization

China’s global energy investment (CGEI) plays a role in global energy transition. This paper uses a “3D” (decarbonization, denationalization, and dispersion) framework to analyze CGEI from 2005 to 2020 based on the China Global Investment Tracker (CGIT) database. Results indicate that significant decarbonization of CGEI has occurred, particularly after 2013, with the most pronounced effects observed in middle- and low-income countries. Dispersion is also significant as Chinas investment reached some 97 countries expanding across the globe to Africa and Latin America, led by solar and wind energy. On the other hand, a denationalization trend was less obvious. After a short period of expansion by private enterprises, denationalization stalled as central state-owned enterprises surged ahead in leading CGEI.

Government green procurement and corporate ESG performance

This study utilizes data from China's A-share listed companies from 2009 to 2022 and manually collects government green procurement lists published on the Chinese government procurement website. By matching this data with listed companies, we employ a multi-period Difference-in-Differences (DID) model to examine the impact of a firm's inclusion in government green procurement lists on its Environmental, Social, and Governance (ESG) performance. We find that government green procurement significantly improves firms' ESG performance. In the mechanism analysis, we find that executive green perceptions and media and analyst attention amplify the positive impact of government green procurement on firms' ESG performance. Through the heterogeneity analysis, we find that government green procurement promotes ESG performance more significantly when the listed company is a state-owned enterprise, and this promotion is more obvious in central state-owned enterprises. In addition, we find that government green procurement enhances ESG performance more significantly when the company is located in a region with higher levels of market integration. Further research find that government green procurement effectively inhibit “greenwashing” behavior and reduce the probability of negative events. Our findings provide important micro-empirical evidence for understanding the effects of market-based policy instruments on corporate ESG performance and contribute positively to the practice of improving corporate governance capabilities.

Executive pay restrictions, political promotion, and firm efficiency: Evidence from China

Using the mandatory reform in executive pay restrictions within Chinese state-owned enterprises (SOEs) as a quasi-natural experiment, we investigate the effects of compensation incentives and political promotion on firm efficiency. Our difference-in-differences analyses reveal that firm efficiency significantly decreases following the reform, and political promotion can attenuate this negative association. Firm risk-taking is a potential mechanism underlying this observed phenomenon. The negative relationship and mitigation effect are more pronounced for central SOEs and commercial class II SOEs. Furthermore, these findings exhibit variations based on distinctive attributes in compensation structures, CEO characteristics, and political promotion ranks. Overall, our study underscores the complementary roles of explicit and implicit incentives within SOEs, providing a strong rationale for government regulation and reform of executive compensation.

Are state-owned enterprises more responsible for carbon neutrality? Evidence from stock market reactions to China’s commitment to carbon neutrality

This study investigates whether state-owned enterprises (SOEs) are more responsible for carbon neutrality in the context of a country that produces the most carbon dioxide. It examines listed firms’ market reactions to carbon neutrality commitment for China that was announced first time on 22 September 2020. Using the event study method and based on 2,792 listed firms, we find that overall market reactions to the carbon neutrality commitment is significantly negative, suggesting that firms are expected to exert genuine efforts towards attaining the national goal of carbon neutrality. Furthermore, our results indicate that SOEs encounter more substantial negative market reactions compared to non-SOEs, indicative of higher expectations placed on them for realizing the carbon neutrality commitment. Further analysis reveals that negative market reactions are particularly pronounced for central SOEs as opposed to local SOEs, as the former are perceived to bear a heavier responsibility in achieving national goals. Additionally, SOEs with higher corporate social responsibility scores experience stronger negative market reactions in comparison to those with lower scores. Further analysis based on a difference-in-differences method and a firm-year sample shows that SOEs reduce firm value and carbon emissions intensity more than non-SOEs after the carbon neutrality commitment. Overall, our study supports the argument that SOEs take more responsibility than non-SOEs in achieving carbon neutrality.

Digital age imperatives and firm internal control quality: evidence from CEOs personal trait and type of state-owned enterprises

PurposeIn the context of an evolving digital-based global economy, this study aims to investige the impact of digital transformation (DT) on a firm’s internal control (IC) quality. It also explores how the personal traits of (CEOs) – such as age, gender and educational background – intersect with DT to shape the IC quality in various types of state-owned enterprises (SOEs).Design/methodology/approachThe study uses the data from China A-shares non-financial enterprises, listed on Shanghai and Shenzhen stock exchanges between 2007 and 2020. Using the fixed effect regression method alongside various statistical techniques, such as propensity score matching, alternative analysis and instrumental variables analysis, yields robust findings. These methods effectively address issues related to functional form misspecification and potential biases from omitted explanatory variables.FindingsThe findings reveal a positive impact of DT on firm IC quality, and this impact is more pronounced in firms when the CEO is female, young and possesses a higher level of education. Notably, the study also distinguishes between central and local state-owned enterprises (SOEs), highlighting that DT has a greater influence on IC quality in central SOEs, where CEOs often have higher political ranks and closer to government monitoring. Overall, the findings are robust and consist to alternative variable and other statistical methods.Research limitations/implicationsFollowing are the significant implications for both academia and business. First, firms that effectively adopt DT to enhance IC not only gain a strategic advantage over competitors but also establish efficient risk management practices and a robust IC system. Second, better IC resulting from DT can enhance investor and stakeholder confidence. This is particularly important for publicly traded companies, where investors and analysts closely scrutinize the robustness of IC systems. Third, DT could result in cost savings over time, as automation and streamlined processes may reduce the need for manual efforts and resource-intensive tasks associated with IC.Originality/valueThe findings are contributed to the literature in multiple ways. It enhances our comprehension of the intricate DT-IC quality relationship, and provides valuable insights into the transformative impact of DT on organizational operations and risk management. It also introduces a novel perspective by investigating how CEOs personal traits intersect with DT to shape IC quality, contributing to upper echelons theory. Furthermore, it expands the discussions on firm ownership by considering the types of SOEs (central vs. local), in the DT-IC quality context.

Board reforms and managerial risk-taking incentives: evidence from Chinese central state-owned enterprises

PurposeThis paper examines the effect of board reforms on managerial risk-taking incentive provision in state-owned enterprises (SOEs) whose managers are undue risk-averse.Design/methodology/approachWe use the staggered implementation of board reforms in Chinese central government-controlled state-owned enterprises (CSOEs) as an exogenous shock to board governance. We collect data on board reforms for a set of pilot CSOEs during the period 2005 to 2020 from the State-owned Assets Supervision and Administration Commission (SASAC) website by hand. We use a generalized difference-in-difference (DID) design to test the effect of staggered board reform adoption on managerial risk-taking incentive provision.FindingsWe find a positive relationship between board reforms and risk-taking inventive provision, i.e. pay-performance sensitivity, promotion-performance sensitivity and performance target difficulty. The documented relationship is stronger when the value of risk-taking is higher. We also find that board reforms lead to greater risky but value-enhancing investments and that managerial risk-taking incentive provision acts as an important channel through which board reforms improve value-enhancing risk-taking.Originality/valueOur findings suggest that board reforms that improve board governance are effective in addressing risk-related agency conflicts in emerging markets. The findings also highlight the importance of managerial risk-taking incentive provision in inducing risky but value-enhancing investments.

Information matters: The effectiveness of mixed-ownership reform in mitigating financial constraints

Due to the unhealthy principal-agent relationships prevalent in state-owned enterprises (SOEs), these enterprises often lack transparency in financial reporting and other critical information. Drawing on signaling theory, this study examines the impact of mixed-ownership reform (MOR) on financial constraints in Chinese SOEs. Using data from listed manufacturing SOEs between 2009 and 2019, we find that every 0.1 increase in the proportion of non-state shareholders, a proxy for MOR intensity, is associated with an average 2.34 ‰ reduction in financial constraints. This mitigation in constraints primarily arises from decreased information asymmetry between enterprises and the external capital market. Specifically, MOR promotes corporate information disclosure, which sends quality signals to investors, while simultaneously reinforcing corporate governance, which projects intention signals to capital markets. Notably, the effectiveness of MOR in alleviating financial constraints is more significant in capital-intensive and information-sensitive industries, as well as in central SOEs. These findings not only highlight the critical role of MOR in alleviating information asymmetry within SOEs, but also provide valuable insights for similar reforms aimed at advancing sustainable development of SOEs in other countries.

Foreign Divestment and High-Quality Development of State-Owned Enterprises

In China, state-owned enterprises (SOEs) are a crucial pillar and leading force in the national economy, with their high-quality development having a significant impact on the country's economic progress. In recent years, the pace of foreign investment entering China has notably slowed, and the relocation of foreign enterprises from certain industries has increased, making foreign divestment a reality that cannot be ignored. This paper selects data from Chinese A-share listed state-owned companies from 2013 to 2022 as the initial research sample to empirically analyze the impact of foreign divestment on the high-quality development of SOEs. The study finds that: (1) Foreign divestment significantly inhibits the high-quality development of SOEs. (2) Foreign divestment can suppress the high-quality development of SOEs by exacerbating financing constraints, reducing innovation output, and diminishing corporate competitiveness. (3) Implementing a differentiated strategy intensifies the inhibitory effect of foreign divestment on the high-quality development of SOEs, whereas mixed-ownership reform and the digital economy can mitigate this impact. Additionally, the heterogeneity test in this paper reveals that the inhibitory effect of foreign divestment on the high-quality development of local SOEs is stronger than that on central SOEs. Regionally, the inhibitory effect is most pronounced in the eastern regions. This paper enriches the research on foreign divestment and high-quality development of SOEs, exploring the heterogeneous impacts on central and local SOEs and SOEs in different regions, which aids in formulating targeted policy measures to enhance the risk resistance of SOEs and promote their high-quality development.

Overcoming one-sidedness in cadre personnel management: Developing a competency framework for China's central state-owned enterprise executives

China's central state-owned enterprises (SOEs) are politically and economically significant, and executives play a crucial role in determining their performance. In a competitive business environment, the selection and competencies of central SOE executives are crucial. This study aims to identify the competencies required to operate central SOEs and develops a competency framework for their executives. Through qualitative studies (face-to-face interviews and Delphi method) and two quantitative studies, we identify four dimensions—self-development, interpersonal, positional and organizational development—comprising 12 factors and 45 competencies, and use these to construct a competency framework. The competencies identified include some previously identified, but also unique competencies that are specific to the Chinese context. The proposed framework is valuable for understanding and improving managerial practices in central SOEs, and will help in the selection and development of executives. It also provides insights for central SOEs, and for individuals considering career and competency development.

State Ownership Heterogeneity and Corporate Innovation: New Evidence from a Hierarchical Perspective

Unlike prior research, this study re-examines the relationship between state ownership and corporate innovation from a hierarchical perspective. Drawing upon institutional theory, our findings reveal the heterogeneous impact of state ownership, elucidating the positive role of central state ownership in fostering corporate innovation, while highlighting the inhibitory effect of local state ownership. This conclusion withstands rigorous scrutiny through a battery of robustness checks. Mechanism analysis indicates that central state-owned enterprises stimulate innovation by increasing innovation investment and enhancing efficiency, whereas local state-owned enterprises create obstacles for both innovation investment and efficiency. Our paper offers a hierarchical interpretation of the mixed evidence regarding the relationship between state ownership and corporate innovation. Whether state ownership serves as a facilitator or a hindrance to innovation depends on whether central or local state-owned enterprises dominate the national innovation process. Overall, this study offers new insights into the complex effects of state ownership heterogeneity on corporate innovation activities in emerging economies like China, advancing our understanding of the subtle relationship between corporate governance and innovation.

Assessing the asymmetric cost behavior in China

PurposeA country’s institutional environment influences every facet of its business. This paper aims to identify institutional factors (state ownership, government attention on employment and employees’ educational background) that affect the asymmetric cost behavior in China.Design/methodology/approachUsing 2,570 listed firms’ data between 2002 and 2015, we use empirical models to explore the effects of state ownership, government attention on employment and employees’ educational background on the asymmetric cost behavior in China.FindingsThis study found that the asymmetric cost behavior of central state-owned enterprises (CSOEs) is greater than local state-owned enterprises (LSOEs). Meanwhile, the empirical results show that government attention on employment is reflected in five-year government plans, and employees’ educational backgrounds are positively associated with asymmetric cost behavior.Originality/valueThis study contributes to the economic theory of sticky costs, institutional theory and asymmetric cost behavior literature by providing evidence that shows how government intervention and employee educational background limit the flexibility of corporate cost adjustments. Additionally, this study provides guidance to policymakers by showing how government long-term plans affect firm-level resource adjustment decisions.

Career Mobility and Performance Evaluation of China's SOE Managerial Elites

Abstract This paper examines the career mobility and performance evaluation of the leaders of China's state-owned enterprises (SOEs) at the central, provincial and prefectural levels. Using data on executive turnover within publicly listed SOEs, we find that central and local SOE leaders have a similar career flow pattern. Specifically, vertical mobility within the same business group is common and more than 60 per cent of SOE leaders leave their office within three years. Only a minority of SOE leaders achieve political promotion. We also find that performance evaluation criteria are different across central and local SOEs. The leaders who provide better economic outcomes for central SOEs obtain a higher evaluation score, while close political connections boost the promotion prospects of local SOE leaders. Overall, our findings provide granular evidence on the personnel management of China's SOEs from a comparative perspective.

The effect of digitalized tax administration on stock price crash risk: A natural experiment in China

Using a digitalization event of tax governance (the Golden Tax Project III (GTP III)) as a natural experiment, this paper exploits the staggered DID method to investigate the impact of digitalized tax administration on firm-specific future stock price crash risk (SPCR) in China. Our results reveal that the GTP III appears to reduce SPCR. Our findings highlight that the digitalized tax administration has a more prominent association with SPCR for local state-owned enterprises (compared to central state-owned enterprises) and privately controlled enterprises with political connections (compared to privately controlled enterprises without political connections). We also find that the mitigation effect of digitalized tax administration on SPCR is only significant in regions with relatively developed digital economies, for firms managed by senior executives without any financial backgrounds, and firms that receive less media attention. Further investigation reveals that the digitalized tax administration helps to reduce SPCR through the mechanism of tax avoidance, rent-seeking and information transparency.

Do all CEO pay regulations hurt firm performance? Evidence from China

PurposeThe authors study and compare the effects of three CEO compensation restricting policies issued by the Chinese government in 2009, 2012 and 2015. This paper aims to shed light on the conditions under which CEO compenstation can be effectively regulated without negatively affecting firm performance. Design/methodology/approachThese policies targeted state-owned enterprises (SOEs), especially central state-owned enterprises (CSOEs). Using these policies as natural experiments, the authors investigate how their effects differ on CEO compensation, firm performance and two known performance-decreasing mechanisms: perk consumption and tunneling activities.FindingsThe authors show that restricting CEO pay does not necessarily backfire in terms of deteriorating firm performance. This non-decreasing firm performance can be achieved by restricting perk consumption and tunneling activities while introducing CEO pay regulations.Originality/valueThe authors exploit a powerful experimental setting in the context of China. The evidence contributes to the literature on CEO pay regulations and is relevant to the managerial decisions of policy makers and boards of directors.

Nexus between government surveillance on executive compensation and green innovation: Evidence from the type of state‐owned enterprises

AbstractThe Chinese government capped executive compensation in state‐owned enterprises (SOEs) to address income inequality and promote a more equitable distribution of wealth. This study investigates whether regulating top executives' pay alters their motivation for corporate green innovation (GI) initiatives. Using data from 2006 to 2018 for Chinese‐listed SOEs, the regression analysis and difference‐in‐difference methods revealed that government restrictions on executive compensation negatively affect GI. Furthermore, the types of SOE results show that the negative effect of pay restrictions on GI exists only in local SOEs, as opposed to central SOEs. Moreover, high managerial shareholding positively moderates this negative effect, demonstrating that the adverse effects of compensation restrictions are mitigated by the convergence of interests between managers and stakeholders. These findings are robust to instrumental variables and other robustness tests. This study provides policy recommendations for the government to boost its assistance in GI and establish new environment‐related incentives that motivate managers to promote GI and inspire enterprises to deploy sustainable environmental initiatives.

Parent company board reform and subsidiary optimization of cash holdings: A quasi-natural experiment from central state-owned enterprises in China

This study finds that board reform of parent companies in central state-owned enterprise (SOE) groups in China has significantly optimized the cash holdings of subsidiaries, which is reflected in reducing the level of cash redundancy and cash shortage. Moreover, the optimization function manifests mainly in moderate pyramid hierarchy samples, longer geographic distance samples, and fewer vertical interlocks of executive samples between the parent company and subsidiaries. In addition, we examine whether the mechanism for optimizing cash holdings alleviates agency problems, reduces government intervention, and promotes power delegation. Board reform also improves corporate value by optimizing cash holdings. We argue that board reform of parent companies in SOE groups helps alleviate problems caused by the absence of owners, and it reconstructs the power relationship between the government and SOEs. It also facilitates SOEs making reasonable and market-oriented cash holding decisions.

Ultimate Control Rights, Nationalization and Firm Performance: Evidence from China

ABSTRACT This study extends the empirical literature on nationalization by examining the determinants and consequences of state takeovers among China listed firms in which ultimate control has been transferred from private owners to the government. This study finds that state takeovers are more likely in firms with poor performance and higher leverage. Moreover, privatization of central state-owned enterprises is most likely to be reversed. Contrary to popular belief about government interventions, state takeovers lead to higher profitability and labor productivity. These results suggest that government takeovers could address market failures and enhances firms’ performance in emerging markets.

Assessing the roles of efficient market versus regulatory capture in China’s power market reform

China began implementing market-based economic dispatch through power sector reform in 2015, but the reform has encountered some political and economic challenges. Here we identify the reform’s efficiency changes and explore the influences of market-driven and politically driven mechanisms behind them. We do this through a cost-minimizing dispatch model integrating high-frequency data in southern China. We find that the dispatch transition improves the overall efficiency, but regulatory capture in provincial markets limits its full potential. The preference for local enterprises over central state-owned enterprises (SOEs) by local governments, in the form of allocated generation quotas, demonstrates the political challenge for market reform. The allocated generation quota protects small coal-fired and natural gas generators owned by local SOEs, lessening their motivation to improve generation efficiency, even after the reform. As a result, nearly half of the potential carbon dioxide emissions reduction and social welfare gains through market reform is not realized.

Do board reforms in parent firms boost subsidiaries’ innovation?

Although corporate boards play an important role in innovation from a static perspective, little attention has been paid to the impact of board reforms in parent firms on subsidiaries' innovation from a dynamic perspective. Using a quasi-natural experiment on board reforms in central state-owned enterprises (CSOEs) in China, we establish the causal effect of board reforms in parent firms on subsidiaries' innovation. We find that the board reforms in parent firms significantly improve subsidiaries' innovation, which is more significant in enterprises with a higher degree of myopia, lower tolerance of failure, and stronger competitiveness. We also find that an increase in financing constraints and deteriorating corporate governance can positively moderate the policy effect of board reforms in CSOEs on subsidiaries’ innovation. Finally, we provide evidence that board reforms in parent firms enhance the value of subsidiaries.

Judicial independence and corporate innovation: Evidence from the establishment of circuit courts

This study explores the effects of judicial independence on corporate innovation by analyzing the staggered establishment of Circuit Courts in China. We find that introducing Circuit Courts increases corporate innovation, particularly for central state-owned enterprises and private firms. Channel analysis shows that Circuit Courts significantly reduce local judicial protectionism, ease financial constraints, and improve corporate governance, which stimulates innovation. The positive effects of Circuit Courts are more pronounced in cities facing severe political intervention, regions with weak legal environments, and private firms without political or banking connections. Our results are robust to endogeneity concerns, alternative measures and specification models. Overall, this study supports the theoretical arguments that institutions matter and that improvements in judicial quality boost firms' incentives to innovate.