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Does public money drive out private? Evidence from government regulations of industrial overcapacity governance in urban China

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  • Cheng, Bo
  • Christensen, Tom
  • Ma, Liang
  • Yu, Junli

Abstract

Governments are required to be fair in regulating market players, but their behaviors are often distorted by political connections with firms. In this study, we use the natural experiment of overcapacity reduction in China's industrial firms to examine to what extent their ownership matters in regulatory stringency. State-owned enterprises (SOEs) were significantly less likely than private firms to reduce their overcapacity. Furthermore, SOEs with more personnel redundancy and less degree of diversification in more competitive industries were less likely to meet central mandates. These results suggest that selective policy implementation helps to meet policy purposes albeit with unintended consequences.

Suggested Citation

  • Cheng, Bo & Christensen, Tom & Ma, Liang & Yu, Junli, 2021. "Does public money drive out private? Evidence from government regulations of industrial overcapacity governance in urban China," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 767-780.
    • Handle: RePEc:eee:reveco:v:76:y:2021:i:c:p:767-780
    DOI: 10.1016/j.iref.2021.07.012
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