State-owned Property, Soft Budget Constraint And Over-investment

With the development of China’s economy, China has entered a transition period to economic development. As an important driving force of economic development, State-owned enterprises are facing an important reform in the wave of economic restructuring. Since the mid-1990s, after a reform aimed to "encounter" and corporatizing, a large amount of state-owned enterprises exited from general competitive industry, therefore the number of state-owned enterprises reduced dramatically. But, after the reform, the dominance advantages of market and resources of state-owned enterprises are strengthened, and the number of state-owned listed companies is growing. Therefore, the number and types of investment projects which the state-owned listed companies participated in are more, leading over-investment problem. Due to the close relationship between the government and state-owned listed companies, the impact of government action on the investment behavior of enterprises has always existed. So it is necessary to study how the soft budget constraint (SBC) affects the investment behavior of state-owned companies.When studying on soft budget constraint, many scholars have served it as a background condition and pointed out that soft budget constraint will cause inefficient investment.In this paper, the author attempts to examine the relationship among state-owned property, SBC and over-investment directly in the context of state-owned property, aiming to address the following four questions:Firstly, from the perspective of state-owned property, how does the degree of ownership concentration affects over-investment? Secondly, whether the state-owned listed companies belonging to different levels of government will affect the soft budget constraint facing with the companies? Whether the degree of ownership concentration will have an effect on soft budget constraint? Thirdly, focusing on the behavior of the government, the author studies how soft budget constraint affects over-investment. To solve these problems, this paper uses empirical research methods and a sample of state-owned listed companies. All the samples are selected from the year of2010to2012. By studying the relationship among the state-owned property, soft budget constraint and over-investment, the author tries to provide policy recommendation to curb over-investment.The paper contains six parts in all. The first part is introduction including the background and research value of the paper, research contents and research methods. The second part is the literature review, attempting to summarize existing domestic and overseas lectures on soft budget constraint and over-investment. The third part is mainly about the concept definition of state-owned property, soft budget constraint and over-investment. Three related theories are explained to support the study. The forth part is the design for empirical study. Hypothesizes of this paper are proposed in this part. Empirical models are elaborated in to verify the hypothesis. The fifth part is the analysis of empirical results. The descriptive statistics of main variables and comparative analysis between groups are given. Empirical results are analyzed in detail to reach the result of this paper. The last part is the research results and future prospects. The conclusion of the study is made. According to the conclusions, suggestions about how to curb over-investment are given. At last, the innovation points and shortcomings of the study are also pointed.