Administrative reform and the disposal of zombie enterprises: evidence from China

http://​www.​gov.​cn/​zwgk/​2005-08/​12/​content_​21939.​htm.

We calculate the minimum interest payable in year t for healthy operations. R = RS × BS + RL × BL. R is the minimum level of interest payment. Short-term borrowing, BS, is the firm’s short-term liabilities in period t − 1 minus the operating liabilities such as accounts payable, value-added tax, income tax, total wages, and total payroll in period t − 1. Long-term bank loans, BL, are expressed as long-term liabilities of the enterprise in period t − 1. RS and RL are the short-term bank loan interest rates and long-term loan interest rates in t − 1, respectively.

Since Chinese industrial enterprises only have industry types, we align industries in the Catalog with the industry codes with GB/T4754-2002 in ASIF to assess the effect of the policy.

Brandt et al. (2014) mention that the 2008 data of the ASIF omits 30% of the sample of enterprises, and the accuracy of industrial enterprise data and the soundness of indicators have declined to some extent since 2009. Significant missing indicators include the number of employees, wages payable, government subsidies, and new product output value used in identifying zombie enterprises and the subsequent mechanism test in this paper. Academics heavily questioned the data quality of enterprise information in 2010. At the same time, since 2011, the statistical caliber of the ASIF has been changed, and the definition of “above-scale” has shifted from a yearly primary business income of 5 million yuan or more to 20 million yuan or more. This has led to a significant change in the coverage of the database sample. Therefore, although the data in ASIF has been updated to 2013, this paper only uses data from 1998 to 2007 for empirical analysis due to the omission of samples, missing important indicators, poor data quality, and changes in statistical caliber.

To exclude the interference of the “directly administered county” reform in 2003, the export tax rebate policy implemented in 2004, and the minimum wage system, this study re-runs model (1) by removing the suspect sample; the results remain robust.

If this year is the year before a provincial Party Congress holding, PPCpre is assigned 1 and 0 otherwise. If this year is the year of a provincial Party Congress, PPC is 1 and 0 otherwise. If this year is the first year after a provincial Party Congress holding, PPCpost is 1 and 0 otherwise.

The ratio of the five major banks’ branches to the total number of bank branches in each province (Industrial and Commercial Bank of China, Bank of China, Agricultural Bank of China, Bank of Communications, and China Construction Bank) is taken as the degree of monopoly of banks (CR5). The market share of non-big five banks is the degree of competition in the banking industry; Noncr5 = 1 − CR5.

The main components are firm size, age, capital intensity, debt, export, and ownership. Firm size is measured by assets. The years of existence of a company are used to calculate its age. The ratio of fixed assets to employees is known as firm capital intensity. The above variables are logarithmic. The ratio of total liabilities to total assets is known as firm debt. When a firm exports, the value of firm exports is 1; otherwise, it is 0. The firm ownership dummy variable is assigned a value of 1 when the firm is an SOE and 0 otherwise.

The three types of enterprises with registration types of state-owned, state-affiliated, state-owned and collective joint ventures, and wholly state-owned are classified as enterprises of state-owned nature. As for joint-stock cooperative enterprises, other limited liability companies, and joint-stock companies, when the state-owned capital to paid-in capital is considered SOEs when the ratio is higher than 50%, the remaining enterprises are defined as private enterprises.