The state capital investing and operating company pilot reform and SOE bailouts

This paper explores the influence of the State Capital Investing and Operating Company (SCIOC) pilot reform on SOE bailout using a staggered difference-in-differences model. Based on a sample of listed SOEs during 2011-2018, we find that when the real controllers of listed SOEs enter the list of SCIOCs, soft budget constraints are alleviated and listed subsidiaries are less likely to become distressed. Mechanism tests indicate that SCIOCs help distressed firms through exiting the market, reducing bank loans, enhancing corporate governance, and improving operating efficiency. Heterogeneity tests show that the effect of SCIOC establishment is more significant in central and western regions, in public welfare and special function industries, for central SCIOCs, for state capital investing companies, when firms are organized in more layers, and for firms that engage in M&As. The empirical results show that the implementation of SCIOCs benefits both micro-enterprise development and state capital layout optimization.