The Impact of the Governance Fragmentation of Forestry Communities on the Economic Performance of State-Owned Forest Enterprises in Northeast China: An Empirical Analysis Based on the Transaction Cost Perspective

Abstract

The 2015 reform of state-owned forest regions (SOFRs) in Northeast China required state-owned forest enterprises (SOFEs) to transfer their governmental and social roles to local authorities. This transition, however, created fragmented governance within forestry communities due to the absence of cooperative mechanisms between SOFEs and local governments. This study examines the economic effects of this governance fragmentation on SOFEs and explores the underlying mechanisms. The research combines new institutional economics and transaction cost theory to develop hypotheses and employs empirical analysis using fixed-effects models on data from 39 SOFEs, belonging to two forest industry groups from 2015 to 2022, collected through surveys and field investigations. The findings indicate that governance fragmentation has a significant negative impact on the economic performance of SOFEs. The high transaction costs incurred by SOFEs in achieving community co-governance with local governments are identified as a key mediating mechanism. These costs lead to resource dispersion and diminished trust between SOFEs and local governments. The economic impact of this governance fragmentation varies based on the economic conditions of the SOFEs, their operational scales, and the clarity of geographical management boundaries with local governments. To mitigate the adverse effects of governance fragmentation, the study suggests proactive institutional designs to reduce transaction costs. These findings offer new insights into the corporate social responsibilities of Chinese SOFEs and suggest improvements in the governance structures of forestry communities in SOFRs in Northeast China. Additionally, the study expands the application of transaction cost theory in public affairs governance and enhances quantitative research on the economic impact on enterprises.