Association Between Borrower and Lender State Ownership and Accounting Conservatism

We examine the association between borrower (firm) and lender (bank) state ownership and accounting conservatism for a sample of Chinese firms. We hypothesize that state‐owned enterprises (SOEs) adopt less conservative accounting than non‐state‐owned enterprises (NSOEs) because lenders are less concerned with downside risk for SOEs than for NSOEs. We also hypothesize a negative relation between conservatism and the fraction of total loans a firm borrows from state‐owned banks (SBs) because SBs have weaker demand for assurance of sufficient net assets to cover loan repayments than non‐state‐owned banks (NSBs). We find support for both hypotheses. Further analyses reveal that: (1) firms that borrow from commercial SBs exhibit more conservative accounting than firms that borrow from policy SBs and (2) firms adopt more conservative accounting as they get more loans from banks with foreign ownership or exclusively foreign banks. However, the results of these additional analyses are to some extent sensitive to alternative measures of accounting conservatism.     

Bureaucrats as managers and their roles in corporate diversification

We examine the diversification choices and financial performance of companies run by former bureaucrats in China. We find that the ex-bureaucrat led companies are involved in more diversified business lines than other firms managed by professionals without such government backgrounds. While former bureaucrats that manage state-owned enterprises (SOEs) tend to operate in unattractive industries, those who manage private firms do businesses in more profitable, faster-growing, and more related industries. The diversification of private firms is helped by additional borrowing capacity brought in by ex-bureaucrat CEOs, while no such financing effect is found in SOEs. The overall diversification performance associated with bureaucrat CEOs is positive in private firms, but not in SOEs. As manifested by the different diversification strategies and outcomes between private firms and SOEs, the government-linked CEOs facilitate transfers of critical business resources that benefit either owners' or governments' goals.     

Agency costs and tax planning when the government is a major Shareholder

In state owned enterprises (SOEs), taxes are a dividend to the controlling shareholder, the state, but a cost to other shareholders. We examine publicly traded firms in China and find significantly lower tax avoidance by SOEs relative to non-SOEs. The differences are pronounced for locally versus centrally-owned SOEs and during the year of SOE term performance evaluations. We link our results to managerial incentives through promotion tests, finding that higher SOE tax rates are associated with higher promotion frequencies of SOE managers. Our results suggest managerial incentives and tax reporting are conditional on the ownership structure of the firm.     

Investment efficiency,state-owned enterprises and privatisation: Evidence from Viet Nam in Transition

Our research firstly tests the difference in investment efficiency between state-owned enterprises (SOEs) and private firms and secondly evaluates the effect of privatisation and equitisation policies on the investment efficiency of former state owned enterprises (SOEs). We use a novel dataset from Viet Nam which covers large and non-listed SMEs across construction, manufacturing, and service sectors. Our methodology uses a structural model to test the relationship between Tobin's Q and capital spending. While evident differences in investment efficiency are found across heterogeneous groups of private firms (size, industry, financially constrained and location), we find no evidence of investment spending being linked to marginal returns by SOEs across all sectors and size classes. However, former SOEs that have been privatised and equitized with a minority state shareholding display positive links between Q and investment. In fact, the link is stronger for these firms than for private firms. Differences are also evident across size and sector highlighting that the method of divestment chosen by government shareholders has a differential impact on efficiency across groups of firms and industries.     

The Impact of Government Intervention on Corporate Investment Allocations and Efficiency: Evidence from China

We examine whether government intervention plays an important role in determining corporate investment allocations and efficiency in China. We find the government tends to intervene to promote corporate investment in fixed assets, equity in other state‐owned enterprises (SOEs), and natural resources including oil, natural gas, and mines, but reduces research and development (R&D) investment. However, the effects of government intervention on these investment allocations are primarily found in local SOEs rather than in central SOEs or in private enterprise. Government intervention also induces a crowding‐out effect in natural resource investments of private firms, suggesting that government intervention distorts investment allocations and reduces investment efficiency.     

Political embeddedness and firms’ choices of earnings management strategies in China

We examine whether and how political embeddedness influences financial reporting quality in China by investigating how government ownership and political connections affect Chinese listed firms’ choices of earnings management strategies. The results show that state-owned enterprises (SOEs), and in particular, central SOEs, are more likely to substitute accrual-based earnings management strategies with costlier but less detectable real earnings management strategies than non-SOEs. The results also indicate that politically connected enterprises (PCEs) are more likely to employ less detectable real earnings management strategies than non-PCEs, so much so that PCEs’ total earnings management level is higher than that of non-PCEs.     

Political connections,tax benefits and firm performance: Evidence from China

This paper investigates the different effects of political connections on the firm performance of state-owned enterprises (SOEs) and privately owned enterprises. Using data on Chinese listed firms from 1999 to 2007, we find that private firms with politically connected managers outperform those without such managers, whereas local SOEs with connected managers underperform those without such managers. Moreover, we find that private firms with politically connected managers enjoy tax benefits, whereas local SOEs with politically connected managers are prone to more severe over-investment problems. Our study reconciles the mixed findings of previous studies on the effect of political connections on firm performance.     

Government ownership and exposure to political uncertainty: Evidence from China

The government of China started its anti-corruption campaign in December 2012. Since then, more than 600 government officials have been investigated. We regard the investigations involving senior officials as signals of increased political uncertainty. Focusing on these events, we study how firms’ exposure to political uncertainty varies with government ownership. It is found that the stock performance of private firms is worse on the event days than in normal times, whereas state-owned enterprises (SOEs) suffer less from the events. Moreover, the event-day effects are not quickly reversed in the post-event periods. Among SOEs, the negative impact of the events also decreases with government ownership. The evidence indicates that government ownership mitigates firms’ exposure to political uncertainty.     

Institutional investors,controlling shareholders and CEO pay‐performance relationship: evidence from China

Using a large sample of China’s listed firms between 2005 and 2015, we find that domestic mutual funds have a positive effect on the CEO pay‐performance relationship, and this effect becomes stronger when their ownership is higher and closer to the controlling shareholder’s ownership. This effect is stronger in non‐state‐owned enterprises (non‐SOEs), firms facing weaker industry competition incentives, and firms located in more developed regions. However, Qualified Foreign Institutional Investors (QFIIs) do not have such an influence. Overall, our study contends that the effectiveness of institutional investors’ monitoring role is subject to their identity, controlling shareholders and institutional environments.     

CEO任期与企业资本投资

本文基于管理者在一定约束条件下追求自身利益最大化的逻辑思路,分析管理者任期与企业资本投资之间的关系,重点检验我国上市公司CEO的既有任期和预期任期对企业投资水平和投资效率的影响。研究结果发现,在管理者任期与投资水平的关系上,国有企业与非国有企业表现一致:CEO的既有任期越长,企业的投资水平越高;CEO的预期任期越短,企业的投资水平越低。在管理者任期与投资效率的关系上,国有企业与非国有企业表现不同:非国有企业的过度投资程度与CEO的既有任期及预期任期无关,而国有企业CEO的既有任期越长,过度投资问题越严重;CEO的预期任期越短,过度投资问题越能得到缓解。     

Does the type of ownership control matter? Evidence from China’s listed companies

By tracing the identity of large shareholders, we group China’s listed companies into those controlled by state asset management bureaus (SAMBs), state owned enterprises (SOEs) affiliated to the central government (SOECGs), SOEs affiliated to the local government (SOELGs), and Private investors. We argue that these distinct types of owners have different objectives and motivations and this will affect how they exercise their control rights over the firms they invest in. In particular, we contend that private ownership of listed firms in China is not necessarily superior to certain types of state ownership. To test our arguments we investigate the relative efficiency of state versus private ownership of listed firms and the efficiency of various forms of state ownership. The empirical results indicate that the operating efficiency of Chinese listed companies varies across the type of controlling shareholder. SOECG controlled firms perform best and SAMB and Private controlled firms perform worst. SOELG controlled firms are in the middle. The results are consistent with our predictions.     

Ownership–efficiency relationship and the measurement selection bias

This study analyses the bias in the selection of performance measures for ownership comparisons, which depends on the specific objectives of the firms being compared. Our sample includes 13 Canadian state‐owned enterprises (SOEs), commercialized and/or privatized between 1976 and 2001. To replace profitability measures and reduce biases, we propose the use of technical efficiency, which provides for SOEs’ specificities. Overall, the results clearly support the view that privatization has no impact on a firm's technical efficiency, the only positive impact being related to a change in the objectives of the firm while using profitability measures. The results of this study raise the question of the validity of comparisons between SOEs and private firms when using profitability indicators. The potential bias in favour of the private firms contributes to a misleading image of the public sector being presented as inferior and inefficient. The use of more sophisticated measures, such as data envelopment analysis, suggests conflicting conclusions. This study also casts doubt on the legitimacy of the privatization program initiated around the world and more specifically in Canada in which the main justification for such a reform has been to increase the performance of SOEs.     

The impact of anti-corruption measures and risk effects on equity incentives and financial misreporting in China

This study examines the effects of anti-corruption and equity incentive risk on financial misreporting in the context of China’s unique corporate ownership structure and governance regime. Using a sample comprising 2,708 cases of financial restatement over the 2007–2017 period. Our key findings suggest that managers’ shareholdings are significantly and positively associated with their firms’ financial misreporting, and certain equity risk factors dramatically alter Chinese corporate governance. Furthermore, managers’ motivation to misreport is significantly more pronounced in non–state owned enterprises (non-SOEs), suggesting that equity incentive risk effects mitigate the “absence of ownership” problem believed to affect SOEs. Managers in highly competitive industries and firms with low institutional ownership are found to be highly motivated to misreport performance.     

Mandatory CSR disclosure,monitoring and investment efficiency: evidence from China

This study investigates the effect of mandatory corporate social responsibility (CSR) disclosure on firms’ investment efficiency in China. Using the CSR regulation that mandates a group of listed firms to disclose stand‐alone CSR reports after 2008 as a natural experiment, we find that firms subject to the mandatory CSR regulation have decreased investment inefficiency subsequent to the mandate, especially in cases of overinvestment. This effect is more pronounced for firms with a control‐ownership wedge, state‐owned enterprises (SOEs), and firms having lower institutional ownership. Further analyses find that the reduction of overinvestment is much more significant in industries with high pollution and that the reduction in investment is not due to the CSR spending siphoning off capital used in other projects. We argue that mandatory corporate social responsibility disclosure improves monitoring over firms in China, especially when firms are characterised as having severe agency problems.     

Ownership and Performance in a Lightly Regulated Environment

This article examines the relation between ownership and performance for New Zealand electricity lines firms over the period 1998 to 2006. The sample is of interest because it represents all firms within a single product industry (local electricity distribution), which is a natural monopoly subject to a light‐handed regulatory regime. Thus we are able to examine the theories of ownership on performance, while controlling for regulation, industry, product market competition, accounting methods and other factors that might impact profitability, such as network reliability and network density. The results suggest that listed firms have similar profitability to council‐owned firms and both listed and council‐owned firms outperform trust‐owned firms. The likely reason for the poorer performance of trust‐owned firms is that they have different agency costs than listed and council‐owned firms and the trustees have lower responsibility than directors. Hence, they have lower incentives to be profitable.     

Does Internal Corporate Governance Complement or Substitute for External Auditing? Evidence from China's Anti‐corruption Campaign

Two competing hypotheses have been developed for the relationship between internal corporate governance and external auditing. One proposes a complementary relationship, while the other suggests it is substitutable. This study takes advantage of China's recent anti‐corruption campaign as a quasi‐natural experiment to explore this relationship. Using a difference‐in‐differences approach, we find that, after the campaign, internal corporate governance improved more in SOEs (state‐owned enterprises) than in non‐SOEs. SOEs were less likely to choose Big 10 auditors after the campaign, while audit firms assigned less experienced auditors to their SOE client firms and charged lower audit fees. These effects were more pronounced in SOEs that exhibited greater improvement in corporate governance. Overall, we find the anti‐corruption campaign improved corporate governance in SOEs but, at the same time, reduced external audit quality, which supports the substitution view. We argue that this result might be driven by the fact that SOEs have limited demand for high‐quality accounting information because the Chinese government maintains strong control over the capital markets.     

Price informativeness and state-owned enterprises: Considering their heterogeneity

State owned enterprises (SOEs) play a pivotal role in the world economy. However, how state ownership affects price informativeness is less-explored, much less the impacts of differing forms of state ownership. We find that the price synchronicity of SOEs is about 9.0% to 15.4% larger than that of non-SOEs, indicating that SOEs have less informative stock prices. Institutional environment and government regulations such as anti-corruption campaigns are important mediating factors in reducing price synchronicity, but the price synchronicity of SOEs is still significantly larger than that of non-SOEs. Differences in state ownership matters for price synchronicity. SOEs associated with local governments (SOELGs), as well as those represented by state assets management bureaus (SAMBs), have larger price synchronicity than non-SOEs. Although SOEs controlled by central governments (SOECGs) also have larger price synchronicity than non-SOEs based on univariate tests, this difference becomes statistically insignificant when controlling for other factors. SOEs are less likely to be publicly exposed for fraud, implying that state ownership provides a buffer for SOEs. Overall, we evidence that state ownership has an important role in deprecating stock-price informativeness, with the impact differing depending on whether SOEs are controlled by central or non-central governments.     

Government Credit,a Double‐Edged Sword: Evidence from the China Development Bank

Using proprietary data from the China Development Bank (CDB), this paper examines the effects of government credit on firm activities. Tracing the effects of government credit across different levels of the supply chain, I find that CDB industrial loans to state‐owned enterprises (SOEs) crowd out private firms in the same industry but crowd in private firms in downstream industries. On average, a $1 increase in CDB SOE loans leads to a $0.20 decrease in private firms' assets. Moreover, CDB infrastructure loans crowd in private firms. I use exogenous timing of municipal politicians' turnover as an instrument for CDB credit flows.     

The effect of the split share structure reform on working capital management of Chinese companies

Before the introduction of the Split Share Structure Reform (SSSR) of 2005, a dual stock system characterized Chinese-listed firms. The states owned non-tradable shares and private owners held tradable shares. The dual system generated agency problems because state owners enjoyed all the rights reserved for tradable shares but escaped the stock market risk faced by non-state shareholders. Because executives of state-owned enterprises (SOEs) received rewards based on the book value of assets rather than the market price of shares, they had no incentive to maximize the share price. The SSSR led to the conversion of non-tradable shares to tradable shares, with two major implications: (1) the interests of government and private owners are now more closely aligned and (2) government agents of SOEs are now rewarded and punished based on a firm's market performance. Thus, the expectation is that government agents turn their attention to improving a firm's market performance rather than its book value during the post-reform era. We examine the impact of the SSSR on Chinese firms' investments in working capital. Based on 511 manufacturing firms between 2003 and 2011, we find that the SSSR is associated with significant reductions in working capital investments during the post-reform period. The reduced investment in working capital is associated with improved market performance of these firms.     

The decreasing value of non‐SOEs’ political connections during China’s anti‐corruption campaign: evidence and mechanism

In this paper, we find that China’s anti‐corruption campaign since 2012 significantly reduces the value of political connections for non‐state‐owned enterprises (non‐SOEs). We provide evidence showing that the decline of the value of political connections for non‐SOEs is attributed mainly to the decreasing return from political connections, instead of increasing political risk. We further find that the decreasing return of the politically connected firms is driven mainly by the disappearance of the ‘resource effect’ of political connection in facilitating access to bank credit and government subsidies, but not due to the increasing cost of maintaining political connections.