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Why do state-owned enterprises over-invest? Government intervention or managerial entrenchment

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  • Jun Bai
  • Lishuai Lian

Abstract

In a transition economy, corporate investment decisions are affected not only by managerial discretion, but also by government intervention. Using the data of publicly listed state-owned enterprises (SOEs) in China, we investigate how government intervention and corporate managerial entrenchment affect over-investment. The results show that both the policy burden from government intervention and rent-seeking due to managerial entrenchment can lead to over-investments, and these two effects appear to be complementary to each other. With a weak government intervention, managerial discretion is greater and management behavior tends toward opportunism.

Suggested Citation

  • Jun Bai & Lishuai Lian, 2013. "Why do state-owned enterprises over-invest? Government intervention or managerial entrenchment," China Journal of Accounting Studies, Taylor & Francis Journals, vol. 1(3-4), pages 236-259, December.
    • Handle: RePEc:taf:rcjaxx:v:1:y:2013:i:3-4:p:236-259
    DOI: 10.1080/21697221.2013.867401
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    Cited by:

    1. Liu, Lihua & Weng, Danyan & Zhang, Qin, 2023. "Unintended consequences of tax enforcement on corporate innovation: Evidence from a natural experiment in China," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 1292-1309.
    2. Teklay, Belaynesh & Yu, Wei & Zhu, Keying, 2024. "The effect of superstitious beliefs on corporate investment efficiency: evidence from China," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 1434-1447.

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