The Research Of Overinvestment Problem In State-owned Enterprises Under The Local Government Intervention

State-owned enterprises are still in a dominant position in our country. However, a large number of studies in academia have manifested that China’s over-investment problem in state-owned enterprises is serious. This paper attempts to analyze the mechanism how the motive of local government intervening state-owned enterprises is formed, and tries to make some relevant policy recommendations.This paper is to explore what kind of public governance objectives makes the local governments have the motivation to intervene the investment behavior of local state-owned enterprises. It is of practical significance and academic value to make a research on the overinvestment problem.This paper adopts two research methods that are normative analysis and empirical analysis. In the normative analysis, we make a deep research on the relationship between public governance objectives of our local government and investment behavior of the listed state-owned enterprises. In the empirical analysis, we conduct an empirical research on the overinvestment problem of the state-owned enterprises under local government intervention through econometric approaches. We are striving to keep the empirical process scientific, objective and rigorous.First of all, this paper shows the four local government’s motivational factors, according to the theoretical assumption, are proposed that are economic growth, employment, fiscal deficits and urbanization respectively. Hypothesis1:the slower economic growth in the region, the local government intervention motivation in the state-owned enterprise investment behavior is stronger, the more serious the local state-owned enterprises over-investment problem. Hypothesis2:regional employment rate is lower, the local government intervention motivation in the state-owned enterprise investment behavior is stronger, local state-owned enterprises over-investment phenomenon is more serious. Hypothesis3:the lower the level of urbanization in the region, the local government intervention motivation in the state-owned enterprise investment behavior is stronger, the more serious the local state-owned enterprises over-investment problem. Hypothesis4:the greater of the fiscal deficit area are, the local government intervention motivation in the state-owned enterprise investment behavior is stronger, the more serious the phenomenon of excessive investment.Then the empirical test of sample data is followed, which shows that economic growth and urbanization are significantly negative to the overinvestment of local state-owned enterprises while fiscal deficit in the local government has significant positive correlation with the overinvestment. As a result, it can be concluded that local governments have stronger motivation to intervene the investment of state-owned enterprises when the local economy grows slow, the urbanization level is low and the fiscal deficit becomes serious. The reason is:it is an effective way for local governments, confronted with the pressure of performance appraisal, to complete their target of public governance by intervening state-owned enterprises investment. Besides, they have the ability to intervene state-owned enterprises investment and obtain public and private interests from the intervention.Based on the established writing ideas, the text is divided into five parts, whose main content is as follows. The first part is the introduction. This section raises the main problem of this research and makes a general introduction to the research. The second part is the literature review. The domestic and foreign representative research literatures on excessive investment are collected and their results are described in the part. The third part is the theoretical analysis on the problem that local government intervention leads to over-investment in the state-owned enterprises. This part elaborates the concept of over-investment, the relationship between enterprises and local governments, public governance objectives and so on. The fourth part is the empirical study on local government intervention leading to over-investment in state-owned enterprises. Firstly, it proposes a what-if analysis that is what kind of public governance objective the local governments are based on to intervene listed state-owned investment behavior. Then the main conclusion is drawn through China’s actual data, models building and hypotheses verifying. The fifth part reaches its conclusion, makes its recommendation and points out its shortcomings. According to the conclusions, it tries to propose targeted proposal with practical feasibility. Furthermore, the paper also lists deficiencies that may exist in the study and points out the limitations of the research results.