State-owned Firms Research Articles

A regional perspective on the privatisation of Chinese state-owned firms

ABSTRACT This study examines the impact of regional formal and informal institutions and the regional origins of private shareholders on the privatisation efficiency of Chinese state-owned enterprises (SOEs). Using a difference-in-differences method to examine 63,599 firm–year observations, we find that, on average, privatisation enhances the capacity utilisation efficiency of Chinese SOEs. That positive effect is stronger in regions with higher marketisation or more embedded in Confucianism. Interestingly, private shareholders from mainland China enhance capacity utilisation, but foreign shareholders exert no significant effect. Moreover, Hong Kong–Macau–Taiwan shareholders weaken the positive effect of privatisation on capacity utilisation in both low-marketised and high-Confucian regions.

Information accessibility and corporate environmental protection investments: Evidence from a quasi-natural experiment

This study investigates the impact of information accessibility on corporate environmental protection investments. Exploiting the staggered inclusion of pilot cities under the Broadband China strategy as a positive shock to information accessibility, we find that this policy results in more environmental protection investments of firms located in pilot cities. Furthermore, enhancing environmental protection awareness and green knowledge accumulation are the underlying mechanisms. We also find that the positive association is more pronounced in state-owned firms, firms with more female executives, and firms with less foreign experience executives. Overall, our study sheds light on the environmental implications of information accessibility.

Financialization and Stock Volatility of Low-/High-Tech Manufacturing Firms in China: The Moderating Role of M&A

ABSTRACT In recent years, the degree of financialization of manufacturing firms may be one of the key factors in the “real to virtual” transition of the Chinese economy. Using data on Chinese listed firms in the low-tech manufacturing sector over the period 2013–2018, this paper examines the relationship between financialization and stock market volatility, and how mergers and acquisitions (M&A) play a moderating role in this relationship. The results show that there is a positive relationship between financialization and stock market volatility, while M&A activity has a negative moderating effect on the relationship. The positive effect of financialization on stock volatility is more pronounced for high-tech firms than for low-tech firms, while the negative moderating effect of M&A on stock volatility is more pronounced for low-tech firms than for high-tech firms. The link between the financialization of high-tech firms and their volatility has been strengthened with the implementation of the Made in China 2025 program. The main conclusions are stabilized after fully accounting for multicollinearity and R&D capital investment. For high-tech firms, financialization has a more pronounced impact on the volatility of non-state-owned firms compared to state-owned firms (SOEs).

Main business profits at risk? Examining the financialization conundrum

We examine the impact of financialization on the profitability of firms’ main business activities and the role of monetary policy. Using evidence from Chinese A-share listed firms from 2008–2019, we reveal that financialization leads to a significant reduction in firms’ main business profits. The negative effect remains robust after testing for robustness and addressing endogenous concerns. We also find that expansionary monetary policy exacerbates this effect, and it is more pronounced when firms hold more short-term financial assets and in state-owned firms. Our findings suggest that enterprises shall strategically reassess investment priorities towards long-term operational sustainability and value creation, while mitigating excessive financialization tendencies.

Geopolitical Risk and Corporate ESG Performance: Evidence from China

ABSTRACT This study investigates the impact of geopolitical risk (GPR) on corporate ESG performance. Using a large sample of A-share listed firms in China from 2009 to 2020, we find that firms tend to perform better in ESG practice when faced with high GPR. Analyzing the mechanisms, we find that firms engage in ESG more actively during uncertain periods to hedge risk and gain reputation. In addition, we find that the positive impact of GPR on ESG is more prominent for state-owned firms, heavily polluting firms, firms with managers holding strong environmental awareness, and firms located in highly foreign-trade-dependent areas. Finally, we find that corporate ESG practice can alleviate the adverse effects of GPR on a firm’s risk and reputation, and also enhance the interests of relevant stakeholders, thereby affirming the results of the mechanism analysis and the propositions in the stakeholder theory. Our results are robust to alternative GPR and ESG measures and different estimation methods and samples after correcting for endogeneity using an IV approach. This study highlights the value of ESG practice during uncertain periods.

Financial Performance Analysis of State-Owned Enterprises' Reverse Mergers Based on Guangdong Hydroelectric Power Corporation's Case

In order to improve the competitiveness of state-owned firms, it is crucial to utilize their existing assets effectively and promote efficiency. The state promotes the restructuring and development of pertinent state-owned firms through mergers and acquisitions. This paper assesses the debt-paying ability, profitability, and expansion capabilities of Guangdong Construction Group through financial performance analysis, using the reverse takeover by Guangdong Hydropower as a case study. Dealing with the financial risks and managerial issues in the reorganization of state-owned companies to improve progress and performance. This paper suggests enhancing capital flow, advancing integration strategies post-mergers and acquisitions, clarifying the objectives of mergers and acquisitions, accelerating the optimization of management systems post-mergers and acquisitions, and developing scientifically grounded merger and acquisition plans based on real circumstances. This paper offers advice for state-owned enterprises involved in similar reverse acquisitions or mergers and acquisitions.

Can issuing carbon neutral bonds promote low-carbon investment in renewable energy industry？

Guiding by the goal of carbon neutrality and carbon peaking, the importance of low-carbon finance in renewable energy industry is becoming increasingly prominent, and carbon neutral bond (CANB) is showing a strong development trend. This study explores the impact of CANB on low carbon investment (LOCI) in renewable energy industry based on the OLS method combined with the quarterly samples, and the following results are obtained. First, issuing CANB can lead to a 4.7 % increase in LOCI. Second, the higher the scale, duration, and rating of CANB, the more they can promote LOCI. Third, CANB may promote LOCI by strengthening corporate environmental responsibility and alleviating financing constraints, while CANB may reduce LOCI by increasing operational pressure. Fourth, CANB has a stronger promoting effect on the LOCI of large-scale firms, central state-owned firms, and eastern firms. Fifth, under the pressure of carbon peaking and public low-carbon attention, CANB has a higher promoting effect on LOCI. This study aims to provide policy implications for promoting low-carbon development of renewable energy firms.

The Mistaken Implementation of the Destination Principle to the Value-Added Tax Collection Partners of State-Owned Enterprises (The Study of Case Number 1263/PID.SUS/2019/PN.JKT.PST and 678/PK/PID.SUS/2023)

MAS's first instance decisions in sentenced him to prison and fined him for violating Article 39 paragraph (1) letter i of Law Number 16 of 2009 and acknowledged his VAT debt settlement. At the judicial review level, the criminal fine of 3 times the VAT owed was not proportional (double jeopardy) and the VAT was overpaid, and the Prosecutor was ordered to return it to the defendant MAS, but the person was still criminally guilty. Additionally, the value-added tax law extends the destination principle to state-owned firms. The analysis shows that the defendant MAS's actions constitute administrative tax acts due to the broadening of the destination principle in Article 16A of Law Number 42 of 2009.

Do relationships matter?—Director networks and corporate open innovation

This paper examines the impact of a firm's important social relationship, director network, on its open innovation. By matching the director network data of Chinese A-share listed companies from 2008 to 2018 with manually collected data on joint patent applications, we conduct an empirical study and explore the possible influence mechanisms. The results show that the director network has a significant positive impact on corporate open innovation. The conclusion still holds after endogeneity treatment, propensity score matching estimation, and other robustness tests. Heterogeneity analysis reveals that director networks promote more R&D cooperation among firms than firm-university and firm-research institution R&D cooperation; director networks have a more positive impact on the R&D cooperation activities of non-state-owned firms compared to state-owned firms; moreover, in terms of the type of director networks, independent director networks have a significantly higher positive impact on firms' open innovation than non-independent director networks. It is further found that director networks can facilitate firms' participation in R&D collaborative activities by alleviating firms' financing constraints and reducing transaction costs. This paper enriches the research related to social relations expanding firm boundaries. The findings provide some references for firms to further develop open innovation activities and the construction of innovation systems.

Effect of top management team attention to digital transformation on innovation activities

Digital transformation, as a global trend, has captured a lot of attention from management. How management allocates attention resources has become an important issue if a firm plans to pursue digital transformation. We provide an empirical analysis for this problem from the perspective of the attention-based view. We use data from 493 listed Chinese manufacturing firms from 2012–2020 to examine how the allocation of top management team (TMT) attention to digital transformation affects innovation activities. The results reveal that TMT attention to digital transformation and its intensity has a positive impact on corporate innovation activities, while the breadth of attention exhibits an inverted U-shaped impact on innovation activities. These findings are consistent with theoretical predictions. We also examine the moderating roles of external factors such as market conditions, corporate ownership, CEO duality, and policy support that distract managers’ attention, and reveal different characteristics of moderating role of Chinese state-owned firms. These findings provided a reference for further promoting digital transformation.

Impact of government support on firm carbon emission efficiency: The transmission channel of green innovation

The objective of “carbon peak” and “carbon neutrality” poses new challenges for China's economic development, where government promotion of firm carbon emission efficiency is an urgent issue to address. Using a sample of Chinese A-share listed firms from 2013 to 2022,this study explores the impact of government support on firm carbon emission efficiency and the mediating role of firm green innovation. Findings indicate that government support can significantly promote carbon emission efficiency, and firm green innovation mediates the effect of government support on firm carbon emission efficiency. Additionally, government support had a stronger positive impact on firm carbon emission efficiency in non-state-owned firms than state-owned firms.

Outward Foreign Direct Investment and Supply Chain Concentration: Evidence from China

The potential risks arising from excessive supply chain concentration have received more and more attention. In practice, high supply chain concentration hinders firms’ sustainable development, especially for firms in emerging markets. However, how to reduce supply chain concentration remains an underexplored problem. Outward foreign direct investment (OFDI) has been an important strategy for firms to reallocate and optimize their supply chain relationships. Thus, we tried to explore whether OFDI can serve as an effective method to reduce supply chain concentration by analyzing their relationship. Using the data of Chinese A-share listed firms from 2008 to 2022, this paper empirically examines the impact of OFDI on supply chain concentration through a two-way fixed-effects model. We find that OFDI significantly reduces supply chain concentration, and this conclusion still holds after using alternative measures of the independent variable and dependent variable, endogeneity treatment, the Heckman two-stage model test, controlling for provincial factors, and excluding special samples. Channel analysis reveals that OFDI reduces supply chain concentration mainly through increasing market share, enhancing innovation capacity, and improving reputation. Cross-sectional analysis shows that the negative effect of OFDI on supply chain concentration is more pronounced in state-owned firms, firms under high industry competition, and high-tech firms. Our findings have important implications for firms to build sustainable supply chain relationships and strengthen supply chain resilience, and for policymakers to guide OFDI reasonably. Future research could further explore the effect of firms’ investment decisions on supply chain configuration.

Are female directors more employee-friendly? Board gender diversity and employee benefits: evidence from China.

The imperative of gender diversity in corporate governance and the adoption of a human-centric governance paradigm are intensifying globally. The structure of board directors, key influencers to corporate decisions, notably shape policies, crucially in emerging markets like China where gender issues are still evolving. Therefore, employing a penal dataset comprising 8,973 firm-year observations from publicly A-share-listed Chinese firms spanning 2006 to 2021, this study empirically examines the impact of board gender diversity on the responsiveness to both employee monetary incentives and non-monetary rewards. The findings unveil a positive correlation, indicating an augmentation in per-employee compensation and an increased likelihood of implementing non-monetary programs, including stock-ownership plans, retirement benefits, and occupational safety certification, in the presence of higher board gender diversity. Notably, these positive associations are more accentuated in state-owned firms, as well as those with lower executive compensation and diminished institutional ownership. Our results remain consistent after considering robustness as well as endogeneity. This empirical evidence not only contributes robust statistical support to the ongoing global initiatives advocating for gender diversity in corporate governance but also underscores the efficacy of boards of directors in effectively managing stakeholder interests, particularly in fostering employee-friendly practices within emerging markets like China.

Barriers to Trade Union Participation among Rural Migrant Workers in China: An Analysis of Labor Disputes, Employment Characteristics, and Socio-Demographic Factors

This study aims to understand the potential for migrant workers to join trade unions by analyzing labor disputes, employment characteristics, and socio-demographic factors. Utilizing data from a survey of 823 migrant workers conducted in Shanghai and nine other cities in China, this research examines both the associational (organizational membership) and behavioral (activity participation) aspects of trade union participation. The results indicate that rural migrant workers exhibit a low level of union participation, contrary to expectations based on their labor market position and the recruitment efforts by Chinese unions. Three primary barriers to union participation were identified: (1) migrant workers in state-owned firms are significantly more likely to participate in unions compared to those in private firms, where union presence is weaker; (2) occupational and employment status discrimination within workplaces hinders rural migrant workers from joining unions; and (3) trust in trade unions is relatively low among Chinese migrant workers, likely due to the close relationship between unions and the government, which may undermine union legitimacy and impede worker engagement. These findings highlight the systemic challenges that rural migrant workers face in engaging with trade unions in China.

Expressways and policy choices of local governments

We examine how intercity road connection affects the policy choices of local governments, using the construction of China’s national expressway as a natural experiment. We show that peripheral counties reduced the level of spending and changed the spending composition since the expressway connection. They became less involved in spending competition, increased the effective tax rate on private firms, and slowed down the privatization of state-owned firms. These results are consistent with the view that mobile capital tends to relocate from peripheral areas to core regions with a lower trade cost. We further show that such changes in government policies contribute significantly to the output decline in these regions after the expressway connection.

Speculative culture and corporate greenwashing: Evidence from China

As culture plays an important role in corporate decisions, this paper examines whether and how the culture of speculation affects corporate greenwashing. Using data of China's A-share listed companies over the period of 2010–2022 and data of provincial lottery sales as a proxy for speculative culture, we find that regional speculative culture positively affects corporate greenwashing. The effect is more pronounced among state-owned firms, firms with high managerial overconfidence and weak corporate governance, and firms located in low-level marketization and poor legal environment. Further, mechanism tests show that speculative culture increases cash flow volatility, agency costs, and managerial self-interest, through which corporate greenwashing is affected. This study adds to the literature on the determinants of corporate greenwashing from a perspective of informal institutions.

Examining the influence of green transformation on corporate environmental and financial performance: Evidence from Chemical Industries of China

This study aims to investigate the impact of green transformation on the environmental and financial performance of 173 Chinese A-share listed chemical enterprises over the period 2012-2022. We employ fixed-effects model, and found the positive influence of green transformation on both environmental and financial performance. Furthermore, it explores the moderating role of corporate governance strength in enhancing the relationship between green transformation and financial and environmental performance metrics. Findings suggest that robust corporate governance further strengthens this positive nexus for both, but mainly moderates environmental performance. The study also delves into the heterogeneous effects of firm size and ownership, highlighting that larger and state-owned firms benefit more substantially from green transformation initiatives. These insights provide crucial implications for policymakers and managers aiming to optimize both financial and environmental outcomes through green transformation. The study recommends the adoption of green technologies and stronger corporate governance to facilitate a shift from a shareholder-centric to a stakeholder-inclusive perspective, ultimately fostering resource-efficient processes that contribute positively to environmental sustainability.

Winner-takes-all or inclusive growth? The impact of digitalization on inter-firm wage inequality: evidence from China

ABSTRACT While previous research explores the impact of digitalization on individual firms’ performance, its potential to generate wage changes among firms with different characteristics, and subsequent inter-firm wage inequality, is often overlooked. Therefore, using China’s city panel data from 2003 to 2019, we assess the impact of digitalization on inter-firm wage inequality. Our findings reveal that digitalization increases inter-firm wage inequality in China, which is further validated using robustness tests. Mechanism tests reveal that digitalization tends to enhance high-wage firms’ productivity, widening the inter-firm productivity gap and exacerbating wage inequality. Further analysis indicates that digitalization boosts productivity more strongly in state-owned firms and those with higher research and development expenditure or more skilled talent, which typically pay higher wages, further widening the wage gap between firms. Our study supports the winner-takes-all perspective in the digital era, suggesting that the government should actively implement measures to protect vulnerable firms and maintain social equity.

Digital transformation and corporate audit risk: Mediating effects of auditor behavior

Digital transformation has emerged as a critical factor in shaping the modern business landscape, with significant implications for corporate governance and audit risk. This study examines how digital transformation affected corporate audit risk in Chinese A-share listed companies from 2011 to 2022. Employing comprehensive empirical analyses, we discover that corporate audit risk is greatly decreased by digital transformation, with this relationship partially mediated by changes in audit fees, audit input, and audit opinions. The effects are more pronounced in state-owned firms. Our findings highlight the importance of integrating digital tools in auditing practices to mitigate risk and enhance audit quality. This study contributes to the understanding of how digital transformation influences auditor behavior and audit processes, providing valuable insights for policymakers and corporate managers in the digital era.

Cities’ labor administrative penalties and labor income share of enterprises

The labor administrative penalties of a city are enforced by the city's labor security administrative department for any breaches of labor security laws, regulations, or norms. The severity of labor administrative penalties differs across cities; thus, this study aims to determine how a city's penalties affect the labor income share of enterprises. We conduct a practical investigation to examine the influence of labor administrative penalties imposed by cities on the internal income distribution structure of firms. This study utilizes theoretical analysis and data on labor administrative penalties in Chinese cities, as well as samples of A-share listed businesses in Shanghai and Shenzhen. From the perspective of the internal income distribution structure, we examine the labor income share of firms and discover that labor administrative penalties in cities significantly raise the labor income share of these enterprises. The share of labor income of enterprises registered in the city increases by 0.9707 % for each additional unit of cities' labor administrative penalties (i.e., for a one-time labor administrative penalty per 10,000 people). The conclusion remains valid even after excluding the endogeneity and robustness tests. Regional labor administrative penalties can enhance the internal management of enterprise quality by promoting transparency and deterring non-compliance. This, in turn, mitigates credit risk for enterprises by fostering stable labor relations. Enhancing the quality of internal control and mitigating credit risk can lead to an increase in the labor income share of firms. An analysis of heterogeneity shows that the impact of labor administrative penalties in cities on increasing the percentage of labor income varies. The impact is more pronounced for state-owned firms and enterprises with low levels of investment.