Determinants And Economic Consequences Of Government Control Based On Political Achievement Demands And Dual Role Of Government

Within the entire incremental reform, state-owned enterprises reform has always been the key of China’s economic reform for a long time (Luo Zhongwei,2009). Through the state-owned enterprises (SOEs) reform, the SOEs have already established diversified structure of property rights. However, the government still has majority control of SOEs. Particularly, most listed companies have been controlled by the government. The government intervenes the activities of SOEs in the market (Fan et al,2011). Moreover, the problem of inefficiency of SOEs has not been solved and corporate governance structure does not work out. So, what factors will affect the control of SOEs? Does government intervention influence SOEs’ governance structure and performance? And how does it take effect? Through the literature review, it is found that although existing studies have examined the relationship between government intervention and the behavior of SOEs from different perspectives, there are still a few problems which are unresolved. Firstly, what is the motivation of government to control SOEs? Secondly, how does the government affect the value of SOEs? Thirdly, what is the difference between different levels of government control?In order to clarify these problems, this research starts from the special institutional background of China’s economic transition and explores the motive of government control of SOEs. The path of this research is "motives of government control-level of government control-firm operation". Moreover, combined with the model of "helping hand" and "grabbing hand", this research discusses the motives, mechanism and results of government control through theoretical analysis and empirical analysis. The contribution of this research is to enrich the literature of government-corporate relationships and to give support to SOEs reforms in the future.In this study, there are eight chapters: Chapter1is introduction. In this chapter, it introduces research background, research methods and research contents.Chapter2is literature review and institution analysis. It reviews the theoretical background of corporate rights, including contract theory, property rights and corporate governance. Then, it discusses the process of SOEs reforms in past30years. Finally, based on the practice of administrative and financial decentralization, this chapter reviews the Federalism Chinese Style and Promotion Tournament Model, as as well explains the reason of China’s economic growth. That is, internal motivation mechanism plays a big role in Chinese government governance. Chapter1and Chapter2provide the basis of empirical research for this dissertation.Chapter3is the literate review of ownership structure and firm value. This chapter focuses on the relationships among government control, corporate governance and performance from the perspective of ultimate controller. This chapter helps to understand the relationship between government and SOEs furthermore provides important experimental evidence for the following four empirical parts.Chapter4discusses SOE Reform Strategy, Political Achievement Demands and Government Control. This chapter takes the ratio of ultimate control that listed companies disclose as proxy variable of government control. It discusses how SOE Reform Strategy and Political Achievement Demands affect the Gorporate Governance of SOEs. Based on the SOEs reform of "encounter" and "strategic adjustment", this chapter investigates how the SOE Reform Strategy affects the government control. Moreover, this chapter explores the influence of the Political Achievement Demands on Local government controlling SOEs.Chapter5is about the relationship among government control, government control level and marginal social expenditure. To further examine the economic consequences of government control, this chapter discuses the effect of government control on company from the view of non-efficient investments and redundancies, which is based on the model of "helping hand". Furthermore, because of the different functions and power of government, the degree and motive of government control varies. Therefore, this chapter explore the impact of government control on listed SOEs varies from the levels of government. Chapter6is on the relationship among government control, corporate finance and government subsidies. To test whether the government has helping hand to SOEs, this chapter investigates the economic results of government control from the view of from financing constraints and government subsidies. Meanwhile, based on the theory of relationship-property, this chapter also analysis the additional profit of government control on listed SOEs varies from the levels of government.Chapter7is about the relationship between government control and firm value. This chapter further verifies the ultimate impact of government control on listed SOEs. This research plan to resolve following two problems:Firstly, government control whether harms the firm value. Secondly, for the different levels of government, the government control whether has the same impacting on firm value.This chapter provides experimental evidence for the research of institutional impact on firm value.Chapter8is conclusion. This chapter concludes the results of all the researches and gives the policy implication. It points the limitation of this research and future directions.The main conclusions of this study are as follows:First, the SOE Reform Strategy, which is based on company size, performance and industrial characteristics, affects the Corporate Governance of SOES. Local government officials have been in the competition of political promotion for a long time. Also, the motive of local government control is to increase GDP and employment.Second, this research finds that with the increase of government control, SOEs have the problems of non-efficiency investment and redundancy. That is to say, government control makes the SOEs to undertake marginal social expenditure, such as non-efficiency investment and redundancy. Meanwhile, because of the different function and power of government, the purpose and level of government intervention varies. Therefore, government control varies from the level of government.Third, government intervention also has helping hand on SOEs. That is to say, with the increase of government control, SOEs will get more political protect from the government. For on thing, government control eases the financial constrain of SOEs. For another, SOEs gets more subsidiaries from the government. Moreover, with the background of administrative decentralization, the positive impact of government control on SOEs decreases with the increase of government level.Fourth, the government control will significantly affect firm value of SOEs. For those SOEs whose ultimate control belongs to central government, government control has significantly positive relations with firm value. For those whose ultimate control belongs to local government, government control has significantly negative relations with firm value. All in all, the lower the level of government, the more damage that government control have on firm value.The contribution of this research is that this paper explores that influencing factors, results and mechanism of government control on SOEs from the view of corporate behavior. Previous research mainly takes government control as grabbing hand. This research tests that government control have helping hand on SOEs from the view of ultimate property right. Meanwhile, combined with helping hand and grabbing hand, this paper analyzes the impact of government control on the behavior of enterprise.First, previous researches discuss the economic consequence of government control on SOEs, which ignores that motive of government control. However, this paper starts from the motives of government control and raises the path of "motive of government control-level of government control-firm operation". Meanwhile, it explains the behavior of government control from the view of helping hand and grabbing hand. Specifically, it tests the comprehensive effect of external variables and company characteristics on government control. This research reveals that government control results in political performance. This research provides a large number of therotical and empirical evidence for future research.Secondly, based on agency theory, existing research mostly discusses government control on corporate behavior from the perspective of ultimate controller or the separation of ownership. However, this exists one problem. That is, as the ultimate stakeholder, the government is not mean to get private benefits. Therefore, this research not only takes agency cost into account, but also institutional background. The content of this research provides experiential evidence for theoretical research.Finally, in research method, this paper discusses the applicability of western financial theory in China’s special economic background. Also, it takes robustness of conclusion into account in empirical research. Therefore, based on empirical analysis, this research designs various models and variables to ensure the robustness and reliability of the conclusion. Specifically, based on the view of ultimate controller, this paper takes ultimate control right as the level of government control and uses proxy variable to test the impact of local government control on SOEs.