Reluctant Entrepreneurs: Evidence from China’s SOE Reform

Hanming Fang (), Ming Li (), Zenan Wu () and Yapei Zhang ()
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Hanming Fang: University of Pennsylvania and the NBER
Ming Li: Chinese University of Hong Kong
Zenan Wu: Peking University
Yapei Zhang: ShanghaiTech University

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: We study the impact of state-owned enterprises (SOEs) on the quality of entrepreneurship in China. Using long series of firm registration and performance data, we document that the massive SOE downsizing in the late 1990s significantly improved the quality of entrepreneurship. Compared with entrepreneurs in other time periods, firms founded by the reluctant entrepreneurs induced by the SOE layoffs have better performances. To explain these results, we present a simple model of occupational choices where high-skilled individuals obtain a higher value than low-skilled individuals from the benefits offered by SOE jobs, leading them to select into the SOE sector in the pre SOE reform era. When the SOE sector was downsized, some high-skilled SOE employees were reluctantly unleashed into entrepreneurship. We also provide corroborating evidence for other implications of the model.

Keywords: Entrepreneurship; Job Displacement; State-owned Enterprise (search for similar items in EconPapers)
JEL-codes: J08 J28 J68 L26 (search for similar items in EconPapers)
Pages: 70 pages
Date: 2023-09-12
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Citations: View citations in EconPapers (1)

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