Refining Employee Treatment: Effects of Government Arrears Repayment in China
54 Pages Posted: 8 Feb 2024
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Refining Employee Treatment: Effects of Government Arrears Repayment in China
Abstract
Research on government procurement emphasizes its positive impacts on the private sector, paying insufficient attention to the risks posed by government arrears. Drawing on resource-based theory and social exchange theory, we explore whether and how government arrears repayment affects employee treatment. Using China’s 2016 Special Supervision Action for Repaying Government Arrears as a quasi-natural experiment, we show that government arrears repayment significantly enhances employee treatment, particularly in aspects related to safety management and employee incentives. Moreover, monetary compensation, social security expenditure, and investment in skilled human capital collectively explain the aforementioned results. We further reveal that the Special Supervision Action enhances employee treatment by reducing government-related accounts receivable and alleviating liquidity constraints, subsequently boosting firm productivity and performance. Cross-sectional tests indicate that this positive effect is more pronounced in firms with fewer nearby bank branches, no political connections, weaker financial health, higher demand for human capital, and regions with more external job opportunities. Overall, our findings shed light on the importance of government arrears repayment to improving liquidity and employee treatment in the private sector.
Keywords: Government arrears, Employee treatment, Liquidity constraints, Resource-based theory, Social exchange theory
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