Government Intervention And Inefficient Investment In State-owned Enterprises

With the economic reform pushing forward, the private economy has expanded. It provides both opportunities and challenges to state-owned enterprises. Investment efficiency is critical to SOE’s value increasing. Natural relationship exists between government and SOEs. One side, this relationship can help SOEs get more advantage resources and priorities. On the other side, it also affects the investment behaviors through inappropriate government intervention, and destroys corporate value maximization. The investment behavior of SOEs often becomes more complicated in such a setup.This paper mainly focuses on the relationship between government intervention and inefficient investment in SOEs. As a lot of research shows that government intervention can give rise to overinvestment, especially in SOEs. Both "helping hand" and "grabbing hand" exist in government intervention. In theories, government intervene is to offset market failure and maintain normal order of the market economy. But in fact, it is become more complex about the government and SOEs. And what role should government plays? Whether is it helping or grabbing SOEs? And how does it affect investment behaviors?The paper aims at raveling the intentions and means of government, finding out how it affects the enterprise to investment. Based on the framework of government and SOEs, the paper makes a further analysis about the social goals, subsidy and inefficient investment. By empirically examining, the paper wants to study the following items.(1) If the motivation of government can aggravate or mitigate inefficient investment in SOEs.(2) Whether the regional difference have effect on the government when it comes to intervene the investment behavior of SOEs.(3) The relationship between policy burden and overinvestment in SOEs.(4) Combined with corporate investment opportunities, it examines the role of subsidy in SOEs.By using the data of A-share SOEs in Shanghai and Shenzhen Stock Exchange during2007to2011, the paper gets the conclusion.(1) The motivation of government can significantly aggravate the overinvestment, and it is more serious in local SOEs. It proves that government has the "grabbing" side. To achieve social goals, government will make intervention to investment behavior of SOEs. Moreover, it also aggravates the underinvestment in SOEs.(2) Unbalanced regional development leads to the difference of marketization degree and economy among regions. In the lower marketization area, the relationship between government and SOEs is more complex. Government has bigger motivation and more chance to intervene investment behaviors of SOEs, and resulting in more serious inefficient investment.(3)This paper takes excess employment and tax contribution as variables to measure policy burden. And the result is that the tax contribution is significantly positive with overinvestment in local SOEs. However, the positive between excess employment and overinvestment is not significant.(4) While SOEs have good investment opportunities, subsidies can help increase the funds of enterprise and mitigate underinvestment. However, under bad opportunities SOEs may have more overinvestment. This fully proves that government both have "helping" and "grabbing" in SOEs.In addition, the paper tries to find out ways to mitigate inappropriate interventions. As for the external system environment, the proper reform methods should be combined with corporate characteristics. Speeding up marketing process is also good for fair competition. And for the internal governance, effective corporate governance and supervision, improve manager incentive can reduce the agency problem.