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

Jun Bai and Lishuai Lian

China Journal of Accounting Studies, 2013, vol. 1, issue 3-4, 236-259

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.

Date: 2013
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DOI: 10.1080/21697221.2013.867401

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