Unlocking the Myths of Asset Size Expansion of China's Large SOEs - Theory and Evidence

42 Pages Posted: 6 Oct 2019

See all articles by Jim Huangnan Shen

Jim Huangnan Shen

University of London, School of Oriental and African Studies (SOAS), Economics; Center for International Development, Harvard Kennedy School, Harvard University

Weiping Li

City University of Hong Kong

Chien-Chiang Lee

Nanchang University

Date Written: September 23, 2019

Abstract

This paper proposes a theoretical framework to illustrate the incentives of the exponential growth of the asset size of China’s large state-owned enterprises in the past decades. We come up with the views that there are 3 types of incentives that lead to the expansion of asset size of large SOEs in China. First, the SOE manager is interested in maximizing her/his own private control of benefits through expanding the asset size of SOEs, which we call the business empire building effect. Second, the state seeks more tax revenue through the larger asset size of SOEs, which could be called the state predatory effect. Third, state benevolent effect in which the state is also concerned with ‘social welfare’ in terms of increasing labour hiring or larger asset size of SOEs for the sake of social stability. The empirical evidences presented in the end are broadly consistent with the theories proposed in the paper. Our empirical results are also robust when the simultaneous equation techniques are used. In the end of the paper, we also use the IV regression in order to resolve the problems of endogeneity.

Keywords: Exponential growth of large SOEs, Private control of benefits, Business empire building effect, Tax revenue, State predatory effect

JEL Classification: D86, L13, P20, P26, P31

Suggested Citation

Shen, Jim Huangnan and Li, Weiping and Lee, Chien-Chiang, Unlocking the Myths of Asset Size Expansion of China's Large SOEs - Theory and Evidence (September 23, 2019). Available at SSRN: https://ssrn.com/abstract=3458343 or http://dx.doi.org/10.2139/ssrn.3458343

Jim Huangnan Shen (Contact Author)

University of London, School of Oriental and African Studies (SOAS), Economics ( email )

London, WC1E 7HU
United Kingdom

Center for International Development, Harvard Kennedy School, Harvard University ( email )

One Eliot Street Building
79 JFK Street
Cambridge, MA 02138
United States

Weiping Li

City University of Hong Kong ( email )

Tat Che Avenue
Hong Kong
Hong Kong

Chien-Chiang Lee

Nanchang University ( email )

999 Xuefu Avenue
Hong Gu Tan New District
Nanchang, Jiangxi 330031
China
330031 (Fax)

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