Public governance and firm total factor productivity: Evidence from a quasi-natural event in China

Abstract

Employing a quasi-natural event, that is, gangdom and evil forces (GEs) elimination in China, we examine how public governance proxied by GEs elimination affects firm total factor productivity (TFP) using data on Chinese-listed firms between 2009 and 2020. Our findings show that GEs elimination significantly reduces firm TFP through two complementary channels: increase in environmental uncertainty and the weakening of the protective umbrella. We also reveal that the effects of GEs elimination on firm TFP are more prominent in SOEs and in firms exposed to weaker media attention. Our main results pass a series of robustness and endogeneity checks. We provide clear policy implications to regulators by identifying firm-level evidence.