Management World is supervised by Development Research Center of The State Council, and sponsored by Development Research Center of The State Council. It aims to reflect the multi-field and multi-disciplinary research on China’s economic and social management issues, and to provide services for China’s economic reform and development. Its scope covers fiscal and financial research, rural economics, macroeconomic management, public management, business management, industrial and regional development. The journal, included in CSSCI and JST, has been in the top list in the field of economic management for many years, and achieved a very high reputation from readers all over the world.
Editor-in-Chief Li Kemu
Deputy Editor-in-Chief Tian Yuan,He Shaohua, Lu Jian, Jiang Dongsheng
Editorial Board Ma Xiaogang, Qiao Renyi, Li Jiping, Li Menggang, Li Peiyu, Zhang Xinmmin, Shen Bainian, Chen Dongsheng, Cheng Quansheng, Zhao Jie,Tuo Zhen
This article mainly discussed the impact of profound and complex changes in the international environment on China’s economic and social development during the 14th Five-Year Plan period, analyzed the main characteristics of China’s transition to the high-quality development stage, and explained China’s newly proposed dual circulation development pattern in which domestic one plays a leading role while international one remains its extension and supplement. The new development pattern is an active adjustment in response to changes in the external environment and domestic development conditions. It is a strategic choice to make use of China’s ultra-large scale market and reshape its new advantages in international cooperation and competition. Internationally, the world is undergoing major changes unseen in a century, which indicating a new round of scientific and technological revolution and industrial transformation at the productivity level, and becoming an important variable affecting global changes and the rise and fall of major powers. It is also manifested at production relations. The adjustment of economic globalization is triggering a shrinkage of the global industrial chain and supply chain, reshaping the global division of labor and governance system. As a result, changes in the balance of power and the intensification of the great-power games have become the biggest variables of the major change. The global pandemic of the COVID-19 has accelerated the evolution. China’s per capita GDP has exceeded USD 10,000, urbanization rate surpassed 60%, and population of the middle-income group exceeded 400 million. China’s shift to high-quality development is not only a transformation of stage, but also a transformation of mode. The main feature is the shift from catching-up in quantity to catching-up in quality, scale expansion to structural upgrading, factor driven to innovation driven, distribution imbalance to common prosperity, and high-carbon growth to eco-friendly development. This article analyzed China’s evolution to the dual circulation. It emphasized that the external environment is becoming increasingly complex and the international circulation is significantly weakened, fully tapping the potential of the domestic circulation is conducive to taking the ownership in an unstable and uncertain world. Taking the domestic circulation as the main body is not to form a closed one, but to form a more opened dual circulation. The core of building a new development pattern is circulation. The key to breaking up production, distribution, circulation, and consumption blockages is reform, promoting the free flow of factors and optimizing resources allocation, improving the cycling efficiency of the national economy, and enhancing its endogenous power. The production part focuses on smoothing the innovation chain, industrial chain and supply chain; the distribution part focuses on solving the problem of income distribution and urban-rural income gap; the circulation part focuses on strengthening the construction of a modern circulation system and smoothing the circulation of the financial industry and the real economy; and the consumption part focuses on expanding household consumption and promoting consumption upgrades. This article analyzed the theoretical logic and development conditions of the new development pattern in multiple dimensions, and proposed the main path to the new development pattern. Specifically, it is necessary to enhance independent innovation capabilities to accelerate technological self-reliance, promote advanced industrial foundation to improve the stability and competitiveness of the industrial chain; it is necessary to persist with the strategy of expanding domestic demand to release the potential of domestic demand, build a high-level socialist market economy system to improve the efficiency of the national economy, and promote a higher level of opening up to reshape new advantages in international cooperation and competition.
As the largest emerging stock market in the world, China’s stock market has distinct Chinese characteristics. The T + 1 trading mechanism and the price limit rule also have its particularity compared with other international stock markets. China’s stock market is the only one that adopts T + 1 trading mechanism, which means that investors buy stocks cannot sell on that day. But after 20 years development of stock market, especially the 2015 stock market crash and trading curb in January 2016, we found that there are still problems about the T + 1 trading mechanism in China’s stock market. For example, after the implementation of Shanghai-Shenzhen-Hong Kong stock connect and Shanghai-London stock connect programs, the Hong Kong stock market cannot be fully connected to the stock market in Chinese mainland. It also has internal conflict between stock index future market, where has implemented T + 0 trading mechanism. Scholars have gradually realized that the T + 1 transactions that had been taken to curb excessive speculation were likely to produce new risks. Therefore, we focused our study on these issues. We examined the impacts of T + 1 trading mechanism in a new way from the perspective of overnight returns. Under the T + 1 trading mechanism, investors buy stocks cannot sell on that day. This unrealized transaction can only be reflected in the opening price the next day, so the study on the next day’s opening returns can directly reveal the impact of T + 1 trading mechanism behind this transaction. Overnight returns are traces left by the trading mechanism of T + 1. With the overview of overnight returns, we have realized the direct study of the impact of the T + 1 trading mechanism. This new method proposed in this paper is one of important contributions and innovations of our research. Through this approach we find that overnight returns in Chinese stock markets are usually negative under the T + 1 trading mechanism. We find the overnight return is a good proxy variable for the T + 1 trading mechanism in China’s stock market. Comparing with other stock market, we find that the overnight return of China’s stock market is significantly negative, while it is almost equal to 0 in the stock index futures market and other international stock markets. Moreover, the T + 1 trading mechanism has a greater impact on stocks which have investors with greater disagreement, higher risk, higher proportions of individual investors, higher arbitrage restrictions and more illiquidity, resulting in a greater decline in the open price of stocks. The T + 1 trading mechanism distorts the stock price formation mechanism and creates a situation of long period of bear market and short period of bull market. It makes the stock market crash and trading curb in 2015 worsen, and is not conducive to the individual investors. This paper also finds firstly that there exists great difference of overnight returns of Chinese A and H shares cross-listed companies. The overnight returns of A and H shares cross-listed companies in the Chinese A-share market are typically negative and significantly lower than those in the H-share market. The unique trading mechanism brings out obvious daily price patterns in Chinese A-share market. Therefore, the T + 1 trading mechanism can be abandoned and make the T + 0 trading mechanism restored. We can start by setting up pilot of particular stock that contained in the CSI300 or MSCI, and then spreading the T + 0 trading mechanism to the whole stock market. Learning from the institutional arrangements, investor access, account classification and trading frequency of the T + 0 trading mechanism of the mature stock market, regulators in China’s stock market should carry out various institutional arrangements, appropriately strengthen the education and management of investors, and carry out the T + 1 trading mechanism gradually.
Agriculture is the most fundamental economic sector in the national economy, and agricultural production efficiency has important influences on both structural transformation and economic development. The increase in agricultural productivity can increase the output of agricultural sector and accelerate its development. It can also release a large amount of rural surplus labor, promotes the development of industry and service sector and accelerates the transformation of economic structure. Moreover, the increase in agricultural productivity can promote farmers’ production efficiency and income, effectively guarantee China’s food security, and narrow the rural-urban income gap. Based on the dataset of more than 20,000 households in fixed survey area in China from 1995 to 2017, this paper collected various crops inputs, outputs and prices, calculated the household total factor productivity (TFP) in a standardized way, and also studied the structural transformation and dynamic efficiency change in Chinese agricultural production. This paper mainly focused on household farming TFP. Firstly, following the exiting literature, we set the classic Cobb Douglas function as the household agricultural production function. Secondly, we calculated crop prices based on sample information and constructed the total agricultural output value of households, and then used the agricultural working days, the area of cultivated land operated, the amount of intermediated inputs purchased by households, and the original value of fixed assets after the perpetual inventory method as labor, land, intermediate inputs and capital input. Thirdly, we used the fixed effects model to estimate the elasticities of factor and then calculated household TFP. Last but not least, based on the estimated household TFP and factor elasticities, we constructed national TFP and studied the dynamics of agricultural production. We also used the OP decomposition and regression methods to study resource allocation efficiency. The study has the following findings. (1) During the sample period, the overall agricultural TFP of the country showed an upward trend, with an average annual growth rate of 1.87% to 2.68%. (2) The changes in the agricultural production structure are obvious, the degree of division of labor rises, and the impact of intermediate products is becoming increasingly important in agricultural production. The agricultural value-added rate has dropped from 78% to 52%. In terms of coefficients of factor elasticities, the coefficient of intermediate products rose from 0.24 to 0.40, the land input coefficient decreased from 0.38 to 0.22, the labor input coefficient decreased from 0.28 to 0.24, and the capital input coefficient remained at a low level of around 0.02. (3) The efficiency of agricultural resource allocation has improved year by year, but the mode was with huge differences compared with the manufacturing sector. In the annual decomposition of TFP growth, the contribution of resource allocation efficiency improvement increased from 19% to 31%, of which the impact of entry and exit was 4%, which was significantly lower than that of the manufacturing sector. This paper has vital significance for deeply understanding China’s agricultural production and structural transformation in the rapid process of industrialization and urbanization. This paper also provides a solid foundation for the future research on agricultural efficiency improvement and rural development. The estimation of farmers’ agricultural production efficiency is helpful for studying farmers’ production behavior and labor allocation during the transition period. Compared with exiting research, this paper uses the detailed long panel dataset and systematic approach to estimate and evaluate household level TFP, which can more comprehensively reflect the dynamics of household agricultural production.
We firstly sorted out the sources of the local governments’ implicit liabilities and their different characteristics in different stages, and found that the local state-owned enterprises (SOEs) are important source of the implicit liabilities, which is a special feature of implicit liabilities in China. Among all the sources, the transformed financing platforms and general local SOEs are more normal, persistent and invisible, and are easily ignored sources of local governments’ implicit liabilities. Secondly, we focused on the local financing platform and general local SOEs, and studied the formation mechanism implicit liabilities and the influence of the implicit liabilities on the economic growth and the sovereign credit rating in a long-term, based on the special decentralized fiscal system in China and policy tool attribute of SOEs. We find that SOEs can help to smooth economic growth fluctuations at the expense of the implicit liabilities’ increase during the period of financial crisis. However, because of inefficiency in using the liabilities, the increased implicit liabilities will have negative effects on economic growth and sovereign credit rating. Finally, we studied the measurement of implicit contingent liabilities of local governments and forecasted the development of the local governments’ implicit contingent liabilities. The main difference in the implicit direct liabilities and the implicit contingent liabilities is that the time and scale of the implicit contingent liabilities are uncertain, which should be considered in the measurement. So, we established an index to measure the implicit contingent liabilities considering the scale of liabilities, the probability of liabilities, and correlations among the local SOEs. Then, we compared the index with the expectation that SOEs will not fail, and this comes from the expectation that the local governments will rescue or provide help to the local SOEs. After comparison, we find that although the expectation that SOEs will not fail is the precondition to form the implicit liabilities of the local governments, it is not the key to the risks of the implicit liabilities. The key to the high risks of implicit contingent liabilities is the local economic development and the efficiency of local SOEs. In the current external environment, faced with the downward pressure on the economy, the impact of the epidemic, China-US trade frictions and other adverse factors, it is important to properly handling the contradiction between the functions of SOEs and the implicit liabilities to improve the system of preventing systemic financial risks. The contributions of our study are as follows. First, we arrange the relationship between the implicit liabilities and the illegal borrowing (or a disguised borrowing), and find that it is a transition period during the period of 2015 to 2018 to establish a new system of local governments’ liabilities. This is helpful to understand the development of the local governments’ implicit liabilities. Second, we study the formation mechanism and measurement of local governments’ implicit liabilities, and enrich the sources of the local governments’ implicit liabilities. Third, we study the influence of the implicit liabilities before they become explicit, which is different from other papers. This is helpful to understand the implicit liabilities of local governments comprehensively. We can further study the relationship between the influence before the liabilities become explicit and that when the liabilities become explicit.
The report to the 19th CPC National Congress points out that the principal contradiction facing Chinese society is the contradiction between unbalanced and inadequate development and the people’s ever-growing needs for a better life. However, compared with the status of highly unbalanced development, we find that GDP growth targets among local governments are highly balanced, presenting an untrue uniformity. That is, the growth target, an important basis of performance evaluation, largely deviates from local economic endowments. Theoretically, local governments have better understanding of their own endowments (Hayek, 1945; Huang et al., 2017). Why these local governments tend to use the one-size-fits-all strategy rather than consider own endowments when setting growth targets? Local governments set very similar growth targets even thought their endowments are very different, which suggest that GDP growth targets may deviate from endowments. How does such deviation impact governments to implement innovation-driven strategy? Based on the stream of literature on the interactions of macro-economic policies and micro-enterprise behaviors, this study aims to address these questions empirically. Using GDP growth targets and DMSP/OLS Data, this study constructed the index of growth target deviation at the provincial level, combined this index with datasets of listed firms, and investigated the negative effect of growth target deviation on firms’ innovation. The results are as follows. (1) Balanced growth targets set by local governments directly incur growth target deviation. Such phenomenon negatively influences the innovation level of local state-owned enterprises (SOEs), which means that the manipulation of short-term growth targets cannot stimulate the long-term innovation-driven strategy. This result still holds after causal relationship identification and robust tests. (2) The mechanism through which growth target deviation harms firm innovation is that such deviation drives local governments to distort resource allocation by investing controlled core resources in projects that can contribute to GDP growth rapidly rather than innovative sectors. (3) As the mediation factor transferring the pressure of GDP growth to companies, the negative effect of growth target deviation on firm innovation is more pronounced for local governments having higher pressure perception and higher tendency to shift pressure and for companies having tendency to accept policies. The theoretical contribution of this paper has two main points. Firstly, unlike the existing literature which focuses on the top-down amplification characteristics of growth target, our work focuses on the balance of GDP target setting and the one-size-fits-all distribution of target data in local governments, which enriches the existing literature of GDP target management. Secondly, this paper provides a key fact: compared with some specific policy factors such as subsidies and taxation, if those factors can influence innovation of micro-enterprises, the GDP target, as the starting point for those macroeconomic policy factors, is bound to be a more bottom-level influencing factor for corporate innovation. From this perspective, we explore a new basic logic which can inhibit innovation of micro-enterprises, which also complements the existing policy and innovation literature. Finally, this study suggests that it is important to abandon the one-size-fits-all strategy when local governments implement innovation-driven strategy to set GDP growth targets. Optimal growth target or reasonable range of growth target should derive from local endowments. From a broader perspective, it is necessary to adjust current promotion systems when evaluating politicians if governments want to reduce or solve the issue of growth target deviation.
According to the dual economic theory, the labor productivity gap between industry and agriculture is the core factor that promotes labor migration. Compared with Western countries, the Chinese government has a strong executive power and the unique governance system has the obvious advantage of pooling all possible resources to address major problems. The unprecedented scale of rural infrastructure construction since the 1990s is just one example, which can explain the changing characteristics of rural labor migration in China to a large extent. Therefore, this paper believes that there are two core elements of China’s rural labor migration to cities: one is the labor productivity gap between industry and agriculture; the other is the construction of rural infrastructure that has spent huge financial and human resources. And these two core elements play different roles in different historical periods. Their respective effects on non-agricultural employment also have an interactive impact. In order to verify the comprehensive impact of rural infrastructure on non-agricultural employment, this paper analyzed the micro mechanism of rural infrastructure influencing non-agricultural employment with the micro data of China Labor-force Dynamics Survey (CLDS), and found that from the micro level, the rural infrastructure, such as clinics, which mainly improves farmers’ living conditions, can keep farmers from non-farming activities; the rural infrastructure, such as roads and irrigation, which mainly promotes labor transaction efficiency and agricultural production, can promote non-agricultural employment; with the narrowing of the gap between industrial and agricultural labor productivity, the role of rural infrastructure in promoting non-agricultural employment is increasing. Considering the complex interaction between macroeconomic variables, this paper took the above conclusions as the micro basis to build a dynamic general equilibrium (DGE) model. It is found that against the macro background of industry nurturing agriculture and the narrowing of the gap between industrial and agricultural labor productivity, the overall rural infrastructure investment can promote non-agricultural employment, and this role will continue and strengthen for a long time. The marginal contribution of this paper is as follows. First, based on the significant advantage of pooling all possible resources to address major problems in China’s national governance system, this paper explains the changes in the migration speed of China’s rural labor force from the perspective of rural infrastructure construction, which makes important theoretical and empirical contributions to building an economic system and academic discourse system with Chinese characteristics, Chinese manner and Chinese style. Second, this paper puts multiple types of infrastructure into the same analytical framework to study their impacts on non-agricultural employment, and also provides an important micro-foundation for other macro-research involving rural infrastructure. Third, relying on micro- and macro-integrated data, we employ the logit model to conduct empirical research on the micro mechanism of rural infrastructure affecting non-agricultural employment. It finds that infrastructure promoting labor transaction efficiency and agricultural production can effectively promote non-agricultural employment, and that the promotion effect of infrastructure on non-agricultural employment is increasingly important. Fourth, from the perspective of dynamic general equilibrium (DGE), it is confirmed that the overall rural infrastructure investment can promote non-agricultural employment, which shows that the role of rural infrastructure in promoting non-agricultural employment is consistent at both micro and macro levels.
China, as the world largest developing country, has been experiencing transformation from real economy to virtual economy since 2012, which shows similarities to financialization. Furthermore, transformation from real economy to virtual economy in real sector is similar to financialization of non-financial corporations (NFCs), which means the deceleration of the productive accumulation and the expansion of financial speculative activities in NFCs. Data show that in 2018, the total financial assets held by Chinese A-share listed manufacturing corporations reached CNY 685 billion, which is seven times that of 2007. The concern about causes and influences of expansion of financial speculative activities in Chinese NFCs has aroused wide discussions in the Chinese academia. However, the existing literature rarely discusses the impact on corporate profit rates. Profit is the fundamental funding source of corporate operation, production and innovation, while profit rate is the core index reflecting corporate operating conditions and future development prospects. At present, China’s real economy is struggling so that many manufacturing corporations expand financial activities to make up for the decline in profit rates. There are two possible results. On one hand, the expansion of financial activities will increase overall profits directly and increase both productive and overall profits by reservoir effect. On the other, it may also decrease productive and overall profits by crowing out effect. Under such circumstances, whether the expansion of financial activities will effectively improve the profit rates of manufacturing corporations has become an important problem. Based on the theory of financialization of NFCs, this article explained the current situation and motivation of Chinese manufacturing corporations expanding financial activities, and systematically analyzed the impact of financial activities on corporate profit rates. Based on the data of Chinese A-share listed manufacturing corporations during 2007–2018, the empirical results show that the expansion of financial activities of manufacturing corporations in China has significantly inhibited their productive profit rates, but the passive effect on the overall profit rates has not been obvious. This passive effect weakens when profit rates increase and strengthens when profit rates decrease. It indicates that there are two dynamic equilibrium mechanisms. When profit rates are low, expanding financial activities will further suppress the profit rates and it will form a vicious circle; when the profit rates are high, expanding financial activities can promote the profit rates and it will form a virtuous circle. The current level of profit rates in China’s real economy is relatively low, so excessive participation in financial activities will lead worse results. Therefore, it is necessary to regulate the financial activities of NFCs and pay more attention to supply-side structural reforms, improving the ability of the supply system to adapt to changes in demand, and effectively increasing profit rates of manufacturing corporations by increasing operating income. The possible marginal contributions of this article are as follows. First, we illustrate that the expansion of financial activities of manufacturing corporations resulted from the decline of profitability of real sector and the prosperity of financial sector. Secondly, we divide profit rates into productive and overall profit rates, and then introduce the dynamic nonlinear relation between financial activities expansion and two kinds of profit rates, and point out that these relations are related to the level of profit rates themselves. Finally, we suggest that solving transformation from real economy to virtual economy should focus on production and finance instead of only on finance.
After the 2008 financial crisis, shadow banking has attracted great attention from financial regulators all around the world. As a credit intermediary system beyond the formal system, shadow banking alleviates financial supervision and causes high systemic risks. Therefore, shadow banking governance has become the top priority of China to maintain financial stability. Against the background of deferred compensation in China’s commercial banking industry, this paper explored whether the implementation of deferred compensation can guide commercial banks to reduce the scale of high-risk shadow banking business. On the one hand, according to the agency theory, deferred compensation is different from other compensation arrangements. It not only coordinates the conflict of interest between shareholders and agents, but also allows bank executives to assume the role of creditor through deferred compensation arrangements. It also helps to alleviate the agency problem between bank executives and creditors, reduce the risk-taking motives of bank executives, and thus reduce the shadow banking business that hides huge risks. On the other hand, although the risk monitoring indicators specified in the Guidelines on Sound Compensation Supervision for Commercial Banks (hereinafter referred to as Guidelines) can effectively monitor the risks of traditional credit business, it is difficult to determine the risks of shadow banking, which provides opportunities of regulatory arbitrage from less regulated shadow banking for banks according to the theory of regulatory arbitrage. Using the sample of Chinese banks from 2007 to 2018 and the promulgation of the Guidelines released in 2010 as a quasi-natural experiment, this paper explored the causal relationship between deferred compensation and the scale of shadow banking in commercial banks. The results of the paper are as follows. (1) The scale of shadow banking has increased significantly after the implementation of the deferred compensation. The deferred compensation has a counter-productive consequence. The deferred compensation arrangement has not restricted the high-risk shadow banking business, but promoted its growth. This conclusion is still valid after a series of robustness tests. (2) After the implementation of the deferred compensation, the banks seem to actively reduce loans to high-risk industries (such as real estate), and improve the on-balance sheet risk evaluation indicators, but in fact, the high-risk loan business was transferred to off-balance sheet shadow banks to avoid supervision and risk assessment. The contributions of this paper are as follows. First, this paper not only theoretically enriches the research on debt incentives, but also provides evidence for the supervisors to deepen and improve their understanding of deferred compensation policies. Since Jensen and Meckling (1976) put forward the agency theory, debt incentives have been regarded as a weapon to safeguard the interests of creditors and reduce management risk. The subsequent theoretical and empirical studies have also mostly confirmed the positive role of deferred compensation payment in corporate risk prevention. However, this paper finds that the deferred compensation may have a negative effect. Secondly, this paper enriches banks’ risk management and shadow banking supervision research from the perspective of executive compensation. After the financial crisis, shadow banking supervision has become the focus of the supervision of financial institutions in various countries and one of the focus topics of academic research. The evidence in this paper shows that under China’s financial system, the debt incentive reform of deferred compensation has a certain risk suppression effect, but it is not an effective mechanism to curb the shadow banking problem.
In China, the spatial structure of industrial activities is undergoing profound changes. Promoting the rational distribution of industrial activities among regions in accordance with objective laws is an essential prerequisite for promoting effective resource allocation and coordinated regional development, which is of great significance to the transformation of China’s economy from rapid growth to high-quality development. Undoubtedly, transportation infrastructure (TI) plays a key role in promoting the distribution as it links cities together and directly influences the flow of production factors and industrial products. Considering the practical implications, we aimed to explore the relationship between TI and the spatial distribution of industrial activities. In this paper, an empirical study which employs a threshold model and uses panel data for China covering 275 cities over the period from 2004 to 2016 was carried out to discuss how intra-regional and inter-regional TI affect the spatial distribution of industrial activities, respectively. Empirical results are as follows (1) Regardless of the economic development level, improving intra-regional TI has led more industrial activities to locate in this region. This part of result is the same as the conclusion of the free capital (FC) model. (2) Improving inter-regional TI has not magnified the siphoning effect of developed cities on less developed ones. Instead, it has led industrial activities to leave developed cities, bringing decrease in the industrial share of developed cities and increase in that of less developed cities. This result is to some degree different from what is drawn from the FC model and some other empirical studies. This paper analyzed the economic growth and industrial structural changes in developed cities whose industrial shares have decreased during the sample period, and reconsidered the influence of inter-regional TI, believing that it is not inter-regional TI but the returns between regions that determines the flow direction of industrial activities. Industrial activities always tend to flow into areas with higher returns after subtracting transportation costs. If the rate of return on industrial activities is higher in developed cities (less developed cities), improving inter-regional TI will accelerate the transfer of industrial activities to developed cities (less developed cities). In this process, social production factors will be better allocated. This paper further reviewed the parameter setting and derivation process of the FC model, and found that the model does not include the dispersion force of economic development. Under the setting of the FC model, developed cities do not have any negative factors affecting industrial activities, and always have advantages compared with less developed cities. Therefore, when interregional TI improves (the cost of interregional trade decreases), capital will naturally be more inclined to choose developed cities. It follows that better inter-regional TI is always associated with the migration of industrial activities from less developed cities to developed ones. Based on the above conclusions, this paper puts forward suggestions on the development direction of TI from the perspective of optimizing resource allocation. Building on existing studies, this paper makes the following contributions. (1) It improves understanding of the effects of inter-regional TI on the distribution of industrial activities; and (2) it identifies the limitations of the FC model in practical application. Further works related to this paper could be directed to the effects of inter-regional transportation infrastructure on a region’s welfare.
Throughout the development of the stock market in the past 30 years, every move of the China Securities Regulatory Commission (CSRC) has affected the capital market profoundly, which suggests that the market has obvious policy-oriented characteristic. In the past ten years, the CSRC has experienced five different chairmen with different supervision focuses and approaches. It indicates that chairman changes result in high regulatory uncertainty. Given the unparalleled market position of the CSRC, the regulatory uncertainty arising from chairman changes is likely to have an important impact on firms’ behavior. However, prior research mainly focuses on the impact of specific CSRC’s supervision measures but overlooks the economic consequences of the supervision uncertainty. Taking the chairman changes of the CSRC as the starting point, this study explored the effect of regulatory uncertainty on firms’ earnings quality, the internal path of this effect, and the interaction between regulatory uncertainty and different governance mechanisms. This study developed hypotheses on regulatory uncertainty and earnings quality from the perspectives of benefits and costs. On the one hand, regulatory uncertainty reduces the cost of earnings manipulation in the current period and will increase the cost of earnings manipulation in the long term. On the other hand, regulatory uncertainty increases the benefit of earnings manipulation in the current period and will decrease the benefit of earnings manipulation in the long term. Using the data of A-share listed manufacturing firms from 2010 to 2018, this study examined the effect of regulatory uncertainty on earnings management. It defined regulatory uncertainty based on whether the chairman of the CSRC changes during the period from the firms’ previous to the current annual reports and used the numbers of regulations and administrative penalty for listed firms to measure regulation policy and intensity. This study finds that when the regulatory uncertainty is high, both the accrual and the real earnings management will increase significantly, with earnings quality descending. Specifically, the uncertainty of regulatory policies and the decline in supervision intensity caused by the chairman changes of the CSRC are the direct factors that affect earnings quality. Moreover, a thorough internal control system and high audit quality can alleviate the negative effect of regulatory uncertainty on earnings quality. Further analyses show that regulatory uncertainty also indirectly affects firms’ earnings quality through financing costs. In addition, media supervision, nearby supervision, and dual supervision can help alleviate the adverse effect of regulatory uncertainty on earnings quality. This study may have the following contributions. First, based on the quasi-natural experiment of the CSRC’s chairman changes, this study explores the effect of regulatory uncertainty on firms’ behavior and enriches the research on environmental uncertainty. It also investigates whether the role of other governance mechanisms can be highlighted when the uncertainty of external supervision is high, which extends the research on the interaction between external uncertainty and corporate governance. Second, prior literature mainly discusses the effect of the CSRC’s specific supervision measures on firms’ behavior but neglects the effect of regulatory uncertainty. This study tries to fill this void. Third, this study explores the direct impact of the CSRC’s chairman changes on earnings quality by examining the role of regulatory policies and supervision intensity and analyzes the indirect impact by examining the mediating effect of financing costs. This study helps open the “black box” of the CSRC’s supervision and construct an analytical framework of the impact of regulatory uncertainty on earnings quality. Fourth, this study may also provide some implications on policy continuity and financial support.
