Beyond Boards and Contracts: Administrative Accountability and Investment Efficiency in State‐Owned Enterprises

ABSTRACT Investment in state‐owned enterprises (SOEs) is often distorted by weak discipline and politically mediated governance. We study a staggered Chinese accountability reform that strengthens managers' ex‐post downside exposure via administrative enforcement and career consequences, rather than board‐ and contract‐based mechanisms. Using a multi‐period difference‐in‐differences design, we find higher SOE investment and improved investment efficiency without increased overinvestment, with effects concentrated among underinvesting SOEs. Mechanism evidence shows stronger discipline (involuntary turnover after underperformance), fewer firm and executive violations, weaker insider resource diversions, and improved internal controls. Overall, ex‐post accountability functions as a substitute governance mechanism primarily alleviating underinvestment frictions.