Dual Tasks, Common Agency And The State-owned Enterprises' Innovation Incentive

This dissertation focuses on the reason why the state-owned enterprises in China lack incentive to innovate during the transition period. Based on the latest framework developed by agency theory and manual collection of data on R&D investment of listed companies in China, this dissertation proposes a principal-agent model in the framework of dual tasks and common agency to analyze the incentive mechanism and institutional environment of the state-owned enterprises'innovation, and uses the data on local government controlled listed companies'R&D investment from 2001 to 2008 as empirical evidence to test the theoretical models.Three main research questions are put forward. Firstly, compared with non-state enterprises, are there significant innovation gaps of state-owned enterprises? Secondly, if there are significant gaps, what are the deep-seated reasons behind this? Is there a causal relationship between the state-owned enterprises'incentive to innovate and the institutional environment? Thirdly, is the property right theory the only important factor contributed to explain the lack of the state-owned enterprises'innovation incentive? Do Managers'promotion and product market competition affect the state-owned enterprises'incentive to innovate?As the main part of the dissertation, the Chapter 3-5 consider the above three issues.The Chapter 3 of the dissertation firstly proposes a principal-agent model with dual tasks and common agency to analyse the incentive mechanism and institutional environment of the state-owned enterprises'innovation. we prove that managerial stock ownership and long tenture are benefical to innovation incentive of SOE, while a increase of marginal income which short-term behavior brings to local government and the problem of common agency are negatively associated with SOEs'innovation incentive.Then, we use the data on local government controlled listed companies to investigate the relationship among managers' stock ownership and tenture, local government intervention, local government size and companies'R&D expendenture. We find that manager s'stock ownership and long tenture are positively correlated with companies'R&D expendenture,while local government intervention and size have negative influence on companies'R&D expendenture.In the Chapter 4 of the dissertation, we propose a model which considers both the property right incentive and tournament incentives to analyze the relationship between the property right, promotion and SOE's innovation incentives. We theoretically prove that managers'pay gap and innovation tournaments incentives are positively correlated with the level of manager's effort. However, the governments'intervention and common agency problem have negative influence on manager's innovation tournaments incentives. We test the theoretical model with the R&D data of local government controlled listed companies. The results do support the model.In the Chapter 5 of the dissertation, we propose a model and empirical evidence to analyze the relationship between the product market competition and managers'innovation incentive of SOE. We theoretically prove that managers'innovation incentive of SOE is positively correlated with the degree of product market competition. By using the R&D data on local government controlled listed companies, we empirically find that managers' innovation incentive of SOE is positive associated with the degree of product market competition.