Abstract:
As an important institutional arrangement for regulating the distribution of returns between the government and state owned enterprises (SOEs) and optimizing the layout of state owned capital, whether the state owned capital operating budget system can enhance SOEs' long term value creation capacity and thereby attract more patient capital inflows warrants in depth study. Using a sample of Chinese central State owned and private A share companies listed on the Shanghai and Shenzhen stock exchanges, this study constructs a multi period intensity based difference in differences model and finds that the state owned capital operating budget system significantly strengthens expectations for patient capital allocation, manifested in marked increases in both the number of long term institutional investors and their shareholding ratios. The underlying mechanisms are as follows: (1) reducing agency costs by curtailing the scale of discretionary funds available to SOEs, curbing managerial discretionary power in resource allocation and investment decisions, and reinforcing managers' managerial responsibility and risk awareness; and (2) promoting disruptive innovation by continuously increasing budgetary support for breakthroughs in key core technologies and forward looking strategic industries, thereby alleviating the resource constraints on SOEs' disruptive innovation activities and enhancing both innovation quality and innovation efficiency. Heterogeneity analysis indicates that the state owned capital operating budget system has a more pronounced effect on strengthening expectations for patient capital allocation when the degree of marketization, the level of human capital, or the intensity of R & D investment are higher. This study offers insights for introducing patient capital into SOEs and further refining the state owned capital operating budget system.
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