The State Capital Investing and Operating Company Pilot Reform and the Financialization of the Chinese SOEs

ABSTRACT This study examines the impact of China's State Capital Investing and Operating Company (SCIOC) reform on the financialization of state‐owned enterprises (SOEs). While previous studies have explored the influence of institutional innovations on SOEs' investment efficiency, less attention has been paid to the impact of SCIOC reform on SOEs' financial investment. Using data from a sample of 13,294 observations of Chinese A‐share listed firms from 2008 to 2022 and a difference‐in‐differences model, we find that SCIOC reform can significantly suppress SOEs' financialization. Mechanism tests confirm that reducing agency costs, enhancing board governance participation motivation, and strengthening internal control quality are core approaches. Heterogeneity analyses demonstrate that the negative effect of the reform on financialization is more pronounced in central SOEs and those in eastern China. Further discussion reveals that the reform can spur the operational capacity of SOEs. These findings have pivotal implications for continually optimizing SCIOC reform in China, clarifying its micro‐governance effect, and restricting SOEs' financialization.