Research On The Influence And Mechanism Of The Reform Of Province-Managing-County On Enterprise Behaviors

This paper examines the impact of fiscal decentralization on the behavior of industrial firms from three perspectives: innovation,total factor productivity,and decentralization of enterprise property rights,as well as the specific impact mechanisms.Few studies have explored the impact of fiscal decentralization on the behavior of micro firms,as most of the existing studies are on macroeconomic growth.This fiscal reform removes the fiscal relationship between prefectural governments and county governments,turning the vertical management system into a horizontal management system at one level,and strongly relieving the fiscal pressure on the bottom level of government by decentralizing fiscal authority to county governments.We use this fiscal reform as an exogenous event to explore whether fiscal decentralization has an impact on the behavior of industrial firms.Based mainly on agency theory,control gain theory,and information asymmetry theory,this paper examines the impact of provincial fiscal reform on the behavior of industrial firms,taking into account our institutional background and studies related to the economic consequences of provincial fiscal reform,studies related to the factors influencing enterprise innovation,studies related to the factors influencing total factor productivity,and studies related to the decentralization of enterprise property rights.Specifically,this paper explores the effects of provincial fiscal reforms on the effects on firm innovation,the effects on total factor productivity and the decentralization of property rights of industrial enterprises,and draws the following main conclusions.(1)The fiscal decentralization reform,the “Province Managing County” fiscal reform,increases the innovation level of firms.This result still holds after a series of robustness tests.In the mechanism analysis,the mediating effect analysis finds that the provincial fiscal reform of directly administered counties increases the innovation capacity of enterprises by increasing the degree of local intellectual property protection,thus increasing the innovation capacity of enterprises.In the heterogeneity test,it is found that the positive relationship between provincial fiscal reform and firm innovation is only significant in firms located in industries with high market competition and in areas with high levels of foreign investment.(2)Fiscal reform in directly administered counties promotes total factor productivity of firms.This result still holds after a series of robustness tests such as adjusting the sample interval and the sample selection method.In the mechanism analysis,we find that the fiscal decentralization reform reduces the cost of obtaining external funds for industrial firms and increases their total factor productivity.This chapter also finds that the effect of fiscal reform on firm productivity in the directly administered counties is more significant in the eastern and coastal regions where nonstate enterprises and marketization levels are higher.(3)The fiscal decentralization reform reduces the decentralization of property rights of firms.This result still holds after a series of robustness tests.In the mechanism analysis,the commanding-heights conjecture is first excluded by grouping tests.Then it is found that the “Province Managing County” fiscal reform improves enterprise performance and tax revenue,so the government will reduce the devolution of enterprise property rights out of self-interest.In the heterogeneity test,it is found that the negative relationship between the fiscal reform and the decentralization of enterprise property rights only exists significantly in firms with higher ROA and firms located in industries with lower market concentration and monopoly level.Finally,this paper summarizes the findings of the study accordingly and proposes policy recommendations based on them.In addition,we present the research shortcomings of this paper and the directions that can be looked into in the future.