Can government supervision alleviate the deviation of enterprises from the real economy to the financial sector: Evidence from China

In China, the deviation of enterprises from the real economy to the financial sector has raised concerns. Using a sample of listed companies held by central state-owned enterprises from 2009 to 2018, we investigate the influence of government supervision on this deviation. We find that government supervision effectively reduces investments in financial assets by central state-owned enterprises. The impact is more significant in enterprises with internal control deficiencies, especially in those related to finance. Further study finds that the effect of government supervision conducted for the first time, second time, and third time shows a decreasing trend.