Purpose Based on Bernheim and Whinston's (1986) common agency theory, which posits that consolidating the authority of multiple principals into a single specialized principal can alleviate incentive deficiencies, this study investigates how the unification of rights and responsibilities in the supervision of Chinese local state-owned enterprises (SOEs) affects SOEs' innovation performance. Design/methodology/approach We use the establishment of municipal State-owned Assets Supervision and Administration Commissions (SASACs) as a quasi-natural experiment and employ a staggered difference-in-differences (DID) design. SOEs supervised by municipal SASACs constitute the treatment group, while SOEs overseen by other government agencies form the control group. Findings The results indicate that after the establishment of municipal SASACs, SOEs controlled by municipal SASACs exhibit a significant increase in innovation. This effect is driven by greater government authorization and reduced agency costs. The cross-sectional analysis reveals that the innovation effect is stronger for firms located in cities with higher governance quality, operating in more competitive industries, having higher state ownership, and led by older chairmen. Additionally, the economic consequences analysis shows that the enhanced innovation can boost firm value. Originality/value This study extends the principal-agent framework by incorporating common agency theory. This demonstrates that consolidating oversight authority into a single specialized government body can serve as an effective institutional response to coordination and incentive problems arising from multiple supervising principals. Furthermore, this paper challenges the assumption that government agents are homogeneous in SOE supervision and highlights how restructuring oversight—without changing property rights—can shape innovation in SOEs.
Cao et al. (Fri,) studied this question.