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Government-Capital Mess: The Influence of Financial Pressure on the Survival and Development of State-Owned Enterprises

【Authors】
ZHANG Xunchang & SU Qiaoling, LIU Ye
【WorkUnit】
ZHANG Xunchang (Jinan University, 510632)SU Qiaoling, LIU Ye (Xiamen University, 361005)
【Abstract】

Under the dual-structure financial model of China, this paper firstly explores the relationship between local financial pressure and “government-capital mess”. Then based on the data of newly-established local state-owned industrial enterprises in China from 1998 to 2007, we investigate the economic effects of “government-capital mess” by examining the impact of local fiscal pressure on the survival and development of state-owned enterprises. In order to eliminate the influence of endogenous problems, we use special transfer payment as the instrumental variable of fiscal pressure. The empirical results show that the greater local fiscal pressure facing a state-owned enterprise at the time of establishment, the smaller its initial size and the lower the initial efficiency. We also find that the establishment of the State-Owned Assets Supervision and Administration Commission of the State Council (SASAC) can weaken the impact of local fiscal pressure on state-owned enterprises. The results illustrate the seriousness of the phenomenon of “government-capital mess” before the establishment of SASAC, and affirm the role of SASAC in promoting the “government-capital separation”. Further analysis finds that the local fiscal pressure level has a long-term negative effect on the scale and efficiency of state-owned enterprises, and has greatly increased the exit risk of state-owned enterprises. The conclusions of this paper provide another explanation for the inefficiency and short life of China's state-owned enterprises from the perspective of “governmentcapital mess”, shedding light on how to further deepen the reform of local state-owned enterprises.
JEL:H11, H72, M13

【KeyWords】
Government-Capital Mess, State-Owned Enterprises, Financial Pressure