Toward an internal governance structure of China’s large SOEs

Jim Huangnan Shen, Jun Zhang, Chien-Chiang Lee () and Weiping Li

Journal of Asian Economics, 2020, vol. 70, issue C

Abstract: This research constructs a simple model to reveal the trade-off between decentralized and centralized governance structures of large state-owned enterprises (SOEs) in China. Our model shows that delegating the decision-making authority to large SOE managers enhances their initiative in terms of local investment while also perhaps leading to the ex-post moral hazard problem. The managerial entrenchment effect causes a misalignment between large SOE managers’ personal interests and organizational interests. We construct a model by introducing a mechanism called the constrained-delegation governance structure approach to illustrate the issues, such that by eliminating some of large SOE managers’ managerial entrenchment investment choice through partially delegating SASAC (State-owned Assets Supervision and Administration Commission of the State Council) officials’ decision-making authority to the party committee within large SOEs, the trade-off between centralization and decentralization with respect to loss of control versus the local initiative can be resolved. We also show and discuss how the efficiency of the constrained delegation governance structure within Chinese large SOEs delivered through party committee control is mitigated with the presence of collusion between the party committee secretary and large SOE managers. By eliminating the self-selection endogeneity issues, some further empirical evidence including the robustness check shows that (1) the existence of a party committee could reduce the overinvestment problem of listed large SOEs, and that (2) the monitoring effect of the party committee is more pronounced when the CEO herself is a party member.

Keywords: Internal governance structure; Large SOEs; Business managerial entrenchment effect; Constrained delegation; Party-committee control (search for similar items in EconPapers)
JEL-codes: D86 L13 P20 P26 P31 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1049007820301160
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:70:y:2020:i:c:s1049007820301160

DOI: 10.1016/j.asieco.2020.101236

Access Statistics for this article

Journal of Asian Economics is currently edited by C. Wiemer

More articles in Journal of Asian Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().