Government power delegation and the policy burden of state-owned enterprises

Abstract

State-owned enterprises (SOEs) constitute a pivotal component of the Chinese economy and maintain a robust relationship with the government. While existing literature predominantly examines the effects of governance and policy burdens on SOEs, the exploration of policy burden transmission through government intervention mechanisms remains underexplored. To clarify the transmission mechanisms and potential impacts of policy burdens, we scrutinize the impact of government power delegation on the policy burdens of SOEs in China. Government power delegation is designed to curtail the government's authority through comprehensive internal reforms. This investigation evaluates the intensity of government power delegation employing a novel textual analysis methodology termed “words net”. Our findings corroborate that local government power delegation alleviates policy burdens in SOEs. The robustness of our findings is affirmed through comprehensive robustness checks and addressing endogeneity concerns via instrumental variables and difference-in diference. Furthermore, this effect is markedly amplified in the context of local SOEs and those with diminished promotional opportunities. Moreover, it attenuates the detrimental impact on firm value engendered by policy burdens. The reconfiguration of the government's role elucidated in this paper yields valuable insights into economic development strategies for China and regions with analogous conditions.