Recent studies highlight the resurgence of state capitalism, with the state increasingly acting as equity investors in private firms. Why do state--business equity ties, including partial and indirect state ownership in private firms, proliferate in weakly institutionalized contexts like China? While conventional wisdom emphasizes state-driven explanations based on static evidence, I argue that regulatory risk reshapes business preferences, prompting firms to seek state investors and expanding state--business equity ties. These ties facilitate information exchange and signal political endorsement under regulatory scrutiny. Focusing on China's crackdown on the Internet and IT sectors, difference-in-differences analyses of all investments from 2016 to 2022 reveal a rise in state--business equity ties post-crackdown. In-depth interviews with investors along with quantitative analysis, demonstrate that shifts in business preferences drive this change. This study shows the resurgence of state capitalism is driven not only by the state but also by businesses in response to regulatory risks.

As digital technologies proliferate, firms increasingly leverage digital transformation strategically, necessitating new orientations attuned to digital technological change. This study investigates how digital orientation (DORI)- the philosophy of harnessing digital technology scope, digital capabilities, digital ecosystem coordination, and digital architecture configuration for competitive advantage – influences firms’ environmental, social, and governance performance (ESG_per). Analysis of Chinese A-share firms from 2010-2019 reveals DORI is associated with superior ESG_per, operating through the mediating mechanism of enhanced digital finance (DIFIN) as a fund-providing facilitator for sustainability initiatives. Additional analysis uncovers important heterogeneities – private firms, centrally owned state-owned enterprises, politically connected, and emerging companies exhibit the strongest DORI - ESG_per linkages. Prominently, the study findings are validated through a battery of robustness tests, including instrumental variable methods, and propensity score matching. Overall, the results underscore the need for firms to purposefully develop multifaceted digital orientation and furnishes novel theoretical insights and practical implications regarding DORI’s role in improving ESG_per.

This paper provides evidence on the cost of political interference on banks with Chinese Private Enterprise Survey data between 2002 and 2012. Using regional political turnovers as a proxy for political influence, we show that political motivations for future promotions distort the bank lending decisions and crowd out lending to private firms. Besides, firms with business connections are more sensitive to turnover, while political connections are not significantly affected. These lending distortions are more considerable where competition for future promotion is more intense and where incumbents have more influence over banks. Moreover, the effect is especially pronounced for small firms. As a result of reduced bank credit, firms’ total credit availability decreases and they have to cut investments. Overall, our results suggest that preferential lending to politically important sectors has negative spillovers and can lead to costly crowding-out of private sectors.

The study examines the impact of Government-Backed Financing Guarantee (GFG) programs on employment in small and medium-sized enterprises (SMEs) using data from the Zhejiang Guarantee Group and non-listed SMEs in China. The findings demonstrate that these programs have a significant positive effect on employment in SMEs, particularly in private firms, and non-ZhuanJingTeXin firms. Furthermore, the study demonstrates that GFGs can enhance firm employment rates by mitigating financing constraints. It also contributing to firm revenue growth.

Chinese companies have a distinctive feature by embedding Communist Party of China (CPC) into governance structure. In this study, we examine the impact of embedded CPC governance on disclosure quality in Chinese private firms. We find that embedded CPC governance improves disclosure quality. We also document that internal control mediates the relationship between embedded CPC governance and disclosure quality. Further analyses show that our results are pronounced for private firms with greater peer pressure, stronger industry competition, and poorer information environments. Overall, our findings aid our understanding of the role of embedded CPC in influencing disclosure practices in private enterprises.

The voluminous strategy research on the determinants of corporate scope is often premised on a well-established property rights regime, which contrasts with the weak property rights protection that still characterizes most countries today. We address this gap by applying property rights theory to theorize and empirically examine how the strengthening of the property rights regime affects corporate scope. Our analysis exploits the enactment of a property law that enhanced the formal protection of private properties in China as a quasi-experiment. We show that with a strengthened property rights regime, the horizontal relatedness among private firms’ businesses increases, but their vertical relatedness decreases, compared with state-owned firms. Further, these effects are less prominent for politically connected firms that are afforded informal protection of property rights. Our findings shed new light on the property rights regime as a critical determinant of firms’ horizontal and vertical scope.

We show that government deleveraging causes corporate distress in a distorted financial market. Our difference-in-differences analysis exploits China’s top-down deleveraging policy in 2017, which reduces local governments’ borrowing capacity through shadow bank financing. Private firms with government procurement contracts experience larger accounts receivable increases, larger cash holdings reductions, and higher external financing costs. These firms also experienced greater likelihoods of ownership changes and deteriorated performance. Effects are muted for state-owned enterprises, which enjoy funding privileges in China’s financial system. Our paper thus reveals a novel channel of allocation inefficiencies where government deleveraging amplifies adverse impacts of financial distortions.

Despite the importance of property rights protection, evidence of their impact on thebirth, survival, and operations of the whole universe of firms, and the broad impact on the economy, is limited. In this paper we address this important question by utilizing unique administrative firm-level datasets in China. Using a difference-in-differences design, we find that the China’s 2007 Property Law led to significant more new private firms, firms that eventually survive, firms with less shareholders, and more new exporters, whereas the impact is the opposite for state-owned enterprises (SOEs). Moreover, we find that the switch in resources between private firms and SOEs contributes to higher economic growth without sacrificing environmental quality.

We examine how hometown ties among local politicians affect capital allocation in China. We use a difference-in-differences design that relies on the exogenous replacements of city officials. Our results indicate that hometown ties between city party secretaries increase city-dyad investment by 10% and firm registrations by 1%. These effects are larger between distant cities and for the investment of small and private firms. Comparing the effects before and after the Chinese anti-corruption campaign, we provide nuanced evidence showing that, although hometown ties may entice the rent-seeking activities of officials, such activities may promote economic growth.

We study the demand for government participation in China’s venture capital and private equity market. We conduct a large-scale, non-deceptive field experiment in collaboration with the leading industry service provider, through which we survey both sides of the market: the capital investors and the private firms managing the invested capital by deploying it to high-growth entrepreneurs. Our respondents together account for nearly $1 trillion in assets under management. Each respondent evaluates synthetic profiles of potential investment partners, whose characteristics we randomize, under the real-stakes incentive that they will be introduced to real partners matching their preferences. Our main result is that the average firm dislikes investors with government ties, indicating that the benefits of political connections are small compared to the cons of having the government as an investor. We show that such dislike is not present with government-owned firms, and this dislike is highest with best-performing firms. Additional results and follow-up surveys suggest political interference in decision-making is the leading mechanism why government capital is unattractive to private firms. We feed our experimental estimates and administrative data into a simple model of two-sided search to discuss the distributional effects of government participation. Overall, our findings point to a “grabbing hand” interpretation of state-firm relationships reflecting a desire by the government to keep control over the private sector.