Study On The Impact Of Decentralization Reform Of SOEs On Firm Productivity And Markup

The current economic situation is complex and severe,and the uncertainties in China’s economic development are increasing significantly.As the backbone of national economic development,the high-quality development of state-owned enterprises(SOEs)is the key to promoting the sustainable and healthy economic development in the new era and building a new pattern of development in which domestic and international double cycles promote each other.General Secretary Xi Jinping pointed out that “SOEs help lay an important material and political foundation for socialism with Chinese characteristics.They serve as a crucial pillar and reliable force for the CPC’s governance of the country.” Therefore,in the context of the new era,further deepening the reform of SOEs and enhancing their vitality and competitiveness are important issues of great concern to both academic researchers and policy makers.Since the reform and opening up,the government has launched a series of policies and measures to carry out the reform of SOEs,such as decentralization of power,restructuring of SOEs,and reform of the system of supervision of state-owned assets.These reform initiatives have stimulated the vitality and creativity of SOEs and contributed to the improvement of their operational efficiency.Many scholars have conducted abundant researches on these reforms,but few scholars have conducted in-depth discussions on the effect of the decentralization reform of SOEs implemented around the end of last century.In fact,the decentralization reform of SOEs is an important way of SOE reform,which played an important role in the wave of SOEs reform from the end of last century to the beginning of this century.In the 1990 s,China’s SOEs were inefficient and many suffered serious losses,leading to a bottleneck for the development of SOEs.In order to further promote the reform of SOEs,the government had implemented a series of reform measures on SOEs based on the basic principle of “Grasp the Large,Let GO of the Small”.Among them,in order to promote the transformation of production and operation mechanism of SOEs,activate the vitality of SOEs and improve the efficiency of their capital operation,the government implemented the decentralization reform of SOEs.The decentralization reform of SOEs refers to the reform by transferring the supervision,finance,personnel,statistics,and other relations controlled by the higher-level government to the lower-level government for localization management.As an important reform method,the decentralization reform of SOEs may bring two aspects of influence to the decentralized SOEs: On the one hand,the decentralization reform of SOEs may improve the performance of SOEs.The decentralization of SOEs could significantly shorten the geographical distance between SOEs and the regulatory government,which is conducive to the regulatory government to obtain local market information and strengthen supervision,so as to effectively alleviate the degree of information asymmetry on both sides,and promote the employees and managers to improve their efforts.In addition,compared with the higher-level government,the lower-level government’s financial capital is tighter.The decentralization reform of SOEs may reduce subsidies for decentralized SOEs and harden their budget constraints,which is conducive to stimulating their vitality and competitiveness and prompting them to change their mode of production and operation,thus improving the performance of SOEs.On the other hand,the decentralization reform of SOEs may reduce the performance of SOEs.Due to financial pressure and other reasons,local governments may over-intervene in the normal operation of SOEs,resulting in over-employment and over-investment,which may have a negative impact on firm performance.In addition,the decentralization reform of SOEs may also reduce the political resources of SOEs,thus reducing the performance of SOEs.Therefore,can the decentralization reform of SOEs improve the performance of decentralized SOEs? Through what specific mechanism will the decentralization reform of SOEs affect the firm performance?The answers to these questions not only have important academic significance,but also help us understand the determinants of SOEs’ operating performance,and have important policy implications for China to further deepen the reform of SOEs,improve the supervision and management system of state-owned assets and join the CPTPP and other international trade organizations.To this end,this dissertation uses data on state-owned manufacturing firms from the China Industrial Enterprise Database from 1998 to 2007,selects the decentralization reforms of SOEs as the subject of this dissertation,and uses the difference-in-differences(DID)to assess the causal effects of the decentralization reforms of SOEs on firm productivity and markup.This dissertation finds that(1)The decentralization reform of SOEs significantly improves the labor productivity,total factor productivity(TFP),and markup of SOEs.This dissertation continues to implement a series of robustness tests including excluding the privatization of SOEs,redefining SOEs,considering possible negative weight problem in the estimation of DID method.The series of robustness checks further confirm that the decentralization reform of SOEs has a positive role in promoting firm productivity and markup.(2)This dissertation analyzes the heterogeneous effects of the decentralization reform of SOEs from four aspects: initial regulatory distance,road density,financial pressure,and different regions,respectively.The results of the heterogeneity analysis show that SOEs that are further away from supervision initially,located at lower road density regions,under greater financial pressure,and in the central and western regions are more significantly affected by the decentralization reform of SOEs.(3)This dissertation continues to explore the specific mechanisms of the effects of the decentralization reform of SOEs on firm performance.The results show that the reform improves the firm performance by improving firm innovation,Improving the management efficiency of SOEs,reducing redundant employees,increasing employees’ salary,reducing the firm agency cost,and shrinking government subsidies.(4)This dissertation further explores the effects of the decentralization reform of SOEs on the performance of overall industry and various subsectors of the industry(The overall industry performance can be decomposed into several industry sub-performances such as incumbent firm performance,entering firm performance,and exiting firm performance).This dissertation finds that the decentralization reform of SOEs improves the performance within incumbent firms,promotes optimal resource allocation,and induces those less efficient firms to exit from the market,thus improving the efficiency of resource allocation in the overall market.The innovation of this dissertation is mainly reflected in the following aspects:First,it has the innovation in research content.There are relatively few studies on assessing the effects of the decentralization reform of SOEs.The only three papers mainly evaluate the effects of the decentralization reform of SOEs on TFP or firm cash holdings.This dissertation examines the effects of the decentralization reform of SOEs on the labor productivity,TFP,and markup,enriching the research on the evaluation of the effects of the decentralization reform of SOEs.Besides,the existing literature lacks an assessment of the effects of the decentralization reform of SOEs on industry-level performance.This dissertation assesses the effect of the decentralization reform of SOEs on overall industry performance as well as on each sub-sector performance.Furthermore,the existing literature on the heterogeneity and mechanism of the decentralization reform of SOEs policy is not deep enough.This dissertation analyzes the heterogeneous effects of the policy from four different perspectives: initial regulatory distance,road density,fiscal pressure,and different regions.At the same time,this dissertation further examines the specific impact mechanisms of the decentralization reform of SOEs on firm performance from the perspectives of government subsidies,firm human capital investment,agency cost,firm innovation,and management efficiency.The heterogeneity and mechanisms explored in this dissertation not only complement the existing literature on the assessment of the effects of the decentralization reform of SOEs,but also help us understand more deeply the determinants of SOEs’ performance and provide useful policy insights for promoting further deepening reform in SOEs.Second,it innovates in research perspective.The previous literature on the effects of the decentralization reform of SOEs mainly analyzed the effects of the decentralization reform of SOEs from perspectives of agency costs or financing constraints.This dissertation finds that the decentralization reform of SOEs can also affect firm performance through the important channel of hardening budget constraints.Therefore,this dissertation comprehensively analyzes the impact of the decentralization reform of SOEs on firm productivity and markup from the perspectives of hardening budget constraints and strengthening supervision based on previous studies.The expansion of these perspectives helps us open the “black box” of the impact of the decentralization reform of SOEs on firm performance.Third,it has employed the latest research methods.Recent literature points out that the staggered DID model may have negative weight problem,resulting in the biased estimation.In this dissertation,the possible negative weight problem is discussed and analyzed in detail in the baseline regression analysis section.In addition,it uses a new method of stacked DID in robustness analysis to verify the robustness of the benchmark study.Further,in order to prevent over-fitting in the estimation and avoid missing important key control variables,the Post Double Selection Lasso Linear Regression method is used in the robustness analysis to better screen the control variables,improving the reliability of the benchmark study.