Overinvestment and efficiency loss of state-owned enterprises

SUN Xiaohua1 LI Mingshan1

(1.Faculty of Management and Economics of Dalian University of Technology, Dalian , China 116024)

【Abstract】Overinvestment is the direct cause of overcapacity, and the resulting loss of efficiency has become a major issue in economic development mode change and industrial restructuring. Against the institutional background of state-owned enterprise (SOE) overinvestment, we measure the level of overinvestment of state-owned industrial enterprises in 31 provinces from 2003 to 2014, and establish a simultaneous equations model to test the interactive relationship between SOEs’ overinvestment, efficiency loss and regional economic development under government intervention; then we examine the policy effect of the government “stimulus package program” in response to the international financial crisis in 2008 by the difference in difference method. The results show that, overinvestment of SOEs is widespread, especially more serious after 2008. The stronger government intervention motivation is, the more prominent the overinvestment of SOEs is. Although overinvestment has significantly positive effects on regional economic development, it results in loss of efficiency. As the concentrated expression of government intervention in the economy, “stimulus package program” has greatly stimulated the overinvestment of SOEs, having avoided the rapid decline in economic growth, but increased the efficiency loss of SOEs.

【Keywords】 state-owned enterprises; overinvestment; government intervention; efficiency loss;

【DOI】

【Funds】 Major Project of the National Social Science Foundation (15ZDA025) Project of the National Soft Science Research Program (2013GXS4D108) Project of the Humanity and Social Sciences Foundation of the Ministry of Education ( 13YJC790127)

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(Translated by ZHANG Wei)

    Footnote

    [1]. ① In general, a state-owned enterprise means an enterprise which a state’s central or federal government invests in or participates in the control of. As a form of production and operation entity, an SOE has the characteristics of a legal representative who makes profits and creates benefits for the public at the same time. SOEs’ profit-making is embodied by retaining and increasing the value of state-owned assets. To achieve the government’s goal for controlling economy and to coordinate the development of different aspects of national economy demonstrate SOEs’ role in creating benefits for the public. In this paper, SOEs include two types of companies, namely, those wholly owned by the state, and those controlled by the state. [^Back]

    [2]. ① In order to ensure the robustness of the calculation results of enterprises’ overinvestment, we conduct robustness tests on microdata between 2003 and 2008 which are included in China Industrial Enterprises Database. The results show that in 2007, SOEs’ overinvestment existed in 28 provinces in China, taking up 90.3% of all the provinces, which is basically consistent with the conclusions drawn at the regional level, and proves the reasonability and credibility of the conclusion of this study. [^Back]

    [3]. ① As far as the DEA window analysis is concerned, there is no theory available at this stage which can be used to determine suitable window length.[26] By referring to an existing study,[27] we choose window length of 3. [^Back]

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This Article

ISSN:1006-480X

CN: 11-3536/F

Vol , No. 10, Pages 109-125

October 2016

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Article Outline

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Abstract

  • 1 Introduction
  • 2 Institutional background and characteristic facts
  • 3 Empirical study design
  • 4 Empirical tests and result analysis
  • 5 Conclusions and suggestions for policy making
  • Footnote

    References