The Effects Of State-owned Enterprises’ Market-oriented Reform On Speed Of Leverage Adjustment

The growth rate of China’s economy is already slowing after the miracle of rapid growth more than 30 years.It is the critical period to change the development model and optimize economic structure for China.The risk of leverage is increasingly prominent during the procedure.Thus,the Chinese government treats deleveraging of firms as an important goal in supply-side structural reform.However,the state-owned enterprises(SOEs)have significantly overleveraged because of the soft budget constraints,credit discrimination,or the disguised guarantees from the government under uncertain economy.Since 1978,the market-oriented reforms of SOEs have been carried out for more than 30 years in China.And most of the literature has proved that this kind of reform can reduce SOEs’corporate tax burden,improve SOEs’the investment efficiency,increase SOEs’Value,and increase the corporate innovation of SOEs.However,there is a striking paucity of literature that explicitly linked market-oriented reforms of SOEs and speed of leverage adjustment.In this case,I investigate the impact of market-oriented reforms of SOEs on speed of leverage adjustment from the perspective of arrangements of organizational structure,ownership structure,and executive incentive system.Specially,I attempt to study the following three basic questions.1.From the perspective of arrangements of organizational structure,does pyramidal structure of SOEs influence speed of leverage adjustment?What is the mechanism of it?2.From the perspective of arrangements of ownership structure,does the existence of multiple blockholders of SOEs influence speed of leverage adjustment?What is the mechanism of behind it?3.From the perspective of executive incentive system,does the pay gap between executives and employees in SOEs influence speed of leverage adjustment?What is the mechanism of it?Since the market-oriented reform of SOEs is involved all aspects of the corporate system,it has a very rich connotation.Considering the characteristics of the capital structure decision and representativeness of the market-oriented reforms,I select pyramidal structure(from the perspective of arrangements of organizational structure),multiple blockholders(from the perspective of arrangements of ownership structure)and pay gap between executives and employees(from the perspective of executive incentive system)as the three aspects to study.We should notice that they are not just three different measures of market-oriented reforms of SOEs.The above three questions I studied are closely linked and unified in the framework of dynamic trade-off theory,although each of them has relatively independent economic theories in respective areas.I use organization theory,property rights theory and motivation theory to explore each question,respectively.This paper consists of six chapters.Major contents of each chapter are outlined as follow.Chapterl is the introduction,which briefly introduces the research background,research ideas,research contents,research improvements and innovations.Chapter 2 is the literature review,which reviews and comments the literatures about(1)the capital structure dynamic adjustment,(2)the economic consequences of marketoriented reforms of SOEs,and(3)the relation between marketization and capital structure.Chapter 3 is the theoretical analysis and research hypothesis.This chapter develops the hypotheses about the relation between pyramidal structure of SOEs and the speed of capital structure adjustment,the existences of multiple blockholders of SOEs and the speed of capital structure adjustment,and internal pay gap in SOEs and the speed of capital structure adjustment,respectively.Chapter 4 introduces the research design,which including data sources,procedure of samples selection,construction of variables and empirical models.This chapter also reports descriptive statistics of the main variables.Chapter 5 is the empirical results.Firstly,I empirically examine the impact of pyramidal structure of SOEs on the speed of capital structure adjustment from the perspective of arrangements of organizational structure.I also study whether the intervention of government,local or central SOEs,or the level of debt impact the above relation.Secondly,I investigate the relation between the existences of multiple blockholders of SOEs and the speed of capital structure adjustment from the perspective of arrangements of ownership structure.I also examine the impact of the power of noncontrol blockholders,the property right attribute of non-control blockholders and corporate governance environment on above relationship.Finally,I examine the influence of the pay gap between executives and employees in SOEs on the speed of capital structure adjustment from the perspective of executive incentive system.I also examine whether the interest of conflict between managers and shareholders,or corporate governance environment affect the above relation.Chapter 6 is the conclusion,including the main findings of this paper,the policy implications,research limitations and future research prospect.This paper has reached the following conclusions.1.Pyramidal layers are significantly positive correlated with the SOEs’ speed of capital structure adjustment.But this effect does not exist in the non-SOEs.These results support the government decentralization hypothesis of SOEs’ pyramidal structural developed by Fan et al.(2013).In further study,I find the above positive relation is more pronounced in firms face more serious government intervention,or in the local SOEs(rather than central SOEs)which meet more government intervention.It means that reducing government intervention is one of important channels through which pyramidal structure of SOEs promote the speed of capital structure adjustment.In addition,I find that non matter in the overleveraged or underleveraged SOEs,the pyramidal layers can promote the speed of capital structure adjustment.2.The existence of multiple blockholders in SOEs is significantly positive correlated with the speed of capital structure adjustment.In further study,I find(1)this effect increases with the power of non-control blockholders,while it decreases with the dispersion of blockholders;(2)the above relation is significantly attenuated by firms’ with better corporate governance.It indicates that reducing private benefit of larger shareholder is one of the important channels through which multiple blockholders promote the speed of capital structure adjustment in SOEs.In addition,I find that non matter the multiple blockholders are all SOEs or partly SOEs,they both can promote the speed of capital structure adjustment of SOEs.3.The pay gap between executives and employees in SOEs is significantly positive correlated with the speed of capital structure adjustment.In further study,I find that this effect increases with the interest of conflict between managers and shareholders,while it decreases with the improvement of corporate governance.It indicates that reducing agency costs between managers and shareholders is one of the important channels through which the internal pay gap promotes the speed of capital structure adjustment in SOEs.The major improvements and innovations of this paper can be summarized in the following aspects.1.Base on micro-level market-oriented reform in SOEs,this paper expands the research perspective of market-oriented reform and speed of leverage adjustment Prior literature explored the relation between market-oriented reform and speed of leverage adjustment in the macro level or industry level.However,the process of marketization in China is a comprehensive project,which contains all kinds of reforms in macro level,industry level and micro level.Base on perspective of arrangements of organizational structure,ownership structure,and executive incentive system,this paper investigate the impact of pyramidal structure,the existence of multiple blockholders,and the pay gap between executives and employees on the speed of capital structure adjustment in SOEs,respectively.Thus,this paper expands the research perspective of market-oriented reform and speed of leverage adjustment.2.This paper clearly reveals the mechanism and channels which market-oriented reforms in SOEs affect the speed of leverage adjustment.SOEs usually face complicated corporate governance environment,such as serious government intervention,tunneling of controlling shareholders,and problem of insider control.Considering the situation,I introduce political cost and agency cost when I analyze firms’ leverage adjustment costs.Then I explore whether market-oriented reforms of SOEs can increase the speed of leverage adjustment through alleviating government intervention,decreasing the conflict of interest between large and small shareholders or reducing the agency cost between shareholders and managers,from the perspective of pyramidal structure,existence of multiple blockholders,and pay gap between executives,respectively.Therefore,the paper builds a new framework for market-oriented reforms in SOEs and speed of leverage adjustment.3.This paper extends research contents about the economic consequences of marketoriented reforms in SOEs by exploring their impact on the speed of leverage adjustment.Although prior literature has studied the consequences of pyramidal structure,multiple blockholders and internal pay gap,it ignored their influence on the speed of leverage adjustment.But we should notice that the speed of leverage adjustment is a key aspect of decision on corporate leverage structure.If we adjust the leverage toward to its target more quickly,the firm can maximize its value more easily.Thus,studying the economic consequences of market-oriented reforms in SOEs from the perspective of leverage adjustment’s speed,can enhance our understanding for these reforms,and extends research contents in this area.