The impact of accountability for illegal operation and investment on investment efficiency of SOEs: Evidence from China☆

The establishment of an accountability system is a significant step in China's ongoing reform of state-owned enterprises (SOEs). This study uses a sample of A-share Chinese listed firms (excluding financial and cultural firms) from 2013 to 2022, employing a difference-in-differences method to examine the impact of accountability system reform on the investment efficiency of SOEs. The findings indicate that accountability for illegal operation and investment (AIOI) substantially enhances the investment efficiency of SOEs, particularly for firms previously characterized by over-investment. Further analysis reveals that the primary mechanisms through which AIOI influences the investment efficiency of SOEs are the reduction of agency costs and the improvement of information communication quality. Additionally, the study finds that the positive impact of AIOI on investment efficiency is more pronounced in SOEs situated in non-western regions, regions with lower levels of corruption, during the initial years of an executive's tenure, and in SOEs where executives are close to retirement. These results underscore the pivotal role of AIOI in boosting the investment efficiency of SOEs and suggest that it encourages the government to take a more active role in supervising and guiding SOEs' activities.