The Role Of State-owned Enterprises As Economic Stabilizers Under Major Negative Shock

In recent years,major shocks such as natural disasters,accidents and public health events have occurred from time to time,posing great challenges to global economic development.Specifically,such major shocks not only pose a threat to life and property safety in the affected areas but also have a severe impact on macroeconomic instability.The outbreak of the Covid-19 pandemic in early 2020 has had severe impacts on China’s economic development.Under the major negative impacts of the Covid-19 pandemic,firms’ operations were suspended,operating income decreased,fixed costs and extra pandemic prevention and control expenses grew and the cash turnover pressure increased sharply.The supply chain is interlinked.If the Covid-19 pandemic leads to the suspension of operations across a substantial number of enterprises,the operational crisis would be likely to quickly propagate through the whole supply chain,ultimately impacting the entire economic system.In response to this potential crisis,the Chinese government continuously emphasized that state-owned enterprises(SOEs)should coordinate upstream and downstream enterprises,stabilize supply chains,and support economic recovery after the pandemic was effectively controlled.SOEs responded positively and played a significant role in helping upstream and downstream enterprises and stabilizing the supply chain in terms of material procurement and market demand in the face of the call of government.As SOEs in the supply chain are connected with upstream and downstream firms through economic transactions,the changes in economic transactions between SOEs and non-SOEs will be directly reflected in the changes in non-SOEs’ net operating cash flow.Therefore,in view of the influence of SOEs on the net operating cash flow of upstream and downstream nonSOEs in the supply chain,I investigate whether SOEs support the operation of nonSOEs,facilitate the operation of supply chains,and stabilize the overall economy in the face of the unexpected and massive negative impacts of COVID-19 on the economy.In the study of the impact of SOEs on the net operating cash flow of non-SOEs in the supply chain,I find that the net operating cash flow of non-SOEs with SOEs in the supply chain is higher than that of non-SOEs without SOEs in the supply chain after the Covid-19.Complementary test shows that SOEs have significantly higher net operating cash flow and better operating performance than non-SOEs after the Covid-19,which suggests that SOEs have the ability to support non-SOEs in the supply chain.Mechanism analysis shows that SOEs in the supply chain can stabilize non-SOEs’ net operating cash flow by maintaining product circulation efficiency and providing more trade credit.The motivation analysis shows that the executives of SOEs are not motivated only by stabilizing the production and operation of SOEs,nor by seeking political gains at the expense of the economic benefits of SOEs to stabilize non-SOEs’ net operating cash flow.SOEs may help non-SOEs in the supply chain for a variety of reasons.After controlling the possible sample selection biases of non-SOEs’ selective disclosure of SOEs in the supply chain,SOEs’ possible selection of supply chain enterprises with certain characteristics,the characteristic differences in the supply chain of non-SOEs,and the influence of supporting policies for the resumption of work and production in the same period,the conclusions remain robust.In the study on the heterogeneity of SOEs’ stabilizing role in the supply chain,I find that SOEs play a greater role in stabilizing the net operating cash flow of nonSOEs in the supply chain when non-SOEs need more support,for example,the financing ability of non-SOEs is weaker,the operating uncertainty of non-SOEs is greater,the impacts of the pandemic are more severe and the financial development is lower in the city non-SOEs located;when the degree of replaceability of non-SOEs in the supply chain is lower,for example,the industry concentration of non-SOEs is higher;when the stronger the ability of SOEs to help the supply chain,for example,the resilience of SOEs is stronger.In the study of the consequences of SOEs’ stabilizing role in the supply chain,I find that,compared with non-SOEs that exclude SOEs in their supply chain,non-SOEs that include SOEs in their supply chain have faster growth in operating performance,higher market value,and smaller declines in the size of employees after the Covid-19 from the perspective of microeconomic consequences.The above tests show that SOEs help upstream and downstream non-SOEs in the supply chain to relieve their cash pressure and improve their operating and market performance.The improvement of micro-enterprises performance is an important motivation to promote macroeconomic growth.Therefore,the more non-SOEs include SOEs in their supply chain in a region,the faster the regional economy can be restored.I find that at the macro level,after the outbreak of the Covid-19 pandemic,the economic recovery is relatively faster and the decline in employment size is relatively smaller in regions with more non-SOEs whose main customers or suppliers include SOEs.This dissertation offers three main contributions to the existing literature.First,a large number of existing literature focus on the fact that SOEs occupy the economic resources of non-SOEs,which hinders the operation and development of non-SOEs,while relatively little attention has been paid to SOEs promoting the operation and development of non-SOEs.I propose that SOEs can stabilize the production and operation of non-SOEs when the overall economy is affected by significant negative shocks.Second,the existing literature mainly regards SOEs and non-SOEs as two independent individuals and discusses the average effect of SOEs on the economic activities of non-SOEs without considering the economic relationship between them.I discuss the influence of SOEs on the economic activities of non-SOEs based on the supply chain relationship between SOEs and non-SOEs.Third,the existing literature mainly discusses the relationship between SOEs and economic stability from the macro level but lack of mechanism analysis.I identify the micro-foundation and underlying mechanism through which SOEs stabilize the economy,tracing the linkages from microenterprises to the macroeconomy,with a focus on supply chain support.This dissertation shows that when confronted with major negative shocks,SOEs can play a significant role in supporting non-SOEs and promoting the steady and long-term development of the Chinese economy.The conclusion yields important policy implications,especially in the current context of increasing downward economic pressure and frictions of international trade.