ABSTRACT This paper employs a multiple regression model to empirically investigate the economic effects of Chinese private enterprises’ reverse mixed-ownership reform from the perspective of earnings quality. The results indicate that state-owned capital participation primarily enhances private enterprises’ earnings quality by augmenting its resource support effect in obtaining government subsidies. Meanwhile, a certain degree of checks and balances is required for state-owned capital to participate in the process to mitigate the second type of principal-agent problem to exert a governance supervision effect. Furthermore, state-owned capital participation does not contribute to the value appreciation of private enterprises solely through improving earnings quality.