Refining Employee Treatment: Effects of Government Arrears Repayment in China

54 Pages Posted: 8 Feb 2024

See all articles by Dongmin Kong

Dongmin Kong

School of Economics, Huazhong University of Science and Technology

Shuai Wang

Shanghai University of Finance and Economics

Yanan Wang

Zhongnan University of Economics and Law; Zhongnan University of Economics and Law

Cheng Xue

Zhongnan University of Economics and Law

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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

Suggested Citation

Kong, Dongmin and Wang, Shuai and Wang, Yanan and Wang, Yanan and Xue, Cheng, Refining Employee Treatment: Effects of Government Arrears Repayment in China. Available at SSRN: https://ssrn.com/abstract=4720871 or http://dx.doi.org/10.2139/ssrn.4720871

Dongmin Kong

School of Economics, Huazhong University of Science and Technology ( email )

Bldg. of Econ. School, Louyu Rd. 1037#
HUST, Hongshan Dist.
Wuhan, Hubei 430074
China

Shuai Wang

Shanghai University of Finance and Economics ( email )

NO. 777 Guoding Road
Shanghai, 200433
China

Yanan Wang (Contact Author)

Zhongnan University of Economics and Law ( email )

WenQuan Building, 182# Nanhu Avenue
Wuhan, Hubei 430073
China

Zhongnan University of Economics and Law ( email )

WenQuan Building, 182# Nanhu Avenue
Wuhan, Hubei 430073
China

Cheng Xue

Zhongnan University of Economics and Law ( email )

182# Nanhu Avenue
East Lake High-tech Development Zone
Wuhan, 430073
China

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