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Board reform of controlling shareholders and soft budget constraints in state-owned enterprises: evidence from a parent board reform in China

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  • Shuai Qin
  • Chenxi Wang
  • Qi Liu

Abstract

This article examines whether and how stronger the board monitoring in a ultimate parent company of SOEs influence the soft budget constraints of affiliated subsidiary firms. Using a quasi-natural experiment in China, we empirically document that strengthening board monitoring at the parent company help reduce soft budget constraints in its listed subsidiaries. Mechanism analysis identifies channels in such a relationship, such as a reduction in political intervention. Furthermore, we find that the impact is more pronounced in state-owned enterprises, where controlling shareholders’ boards exhibit greater independence and in firms experiencing more intense political intervention prior to the reforms. This paper not only expands the research on the influence of political interference on financial market, but also contributes to the literature on the governance effect of controlling shareholders and board reform.

Suggested Citation

  • Shuai Qin & Chenxi Wang & Qi Liu, 2026. "Board reform of controlling shareholders and soft budget constraints in state-owned enterprises: evidence from a parent board reform in China," Applied Economics, Taylor & Francis Journals, vol. 58(32), pages 6413-6430, July.
    • Handle: RePEc:taf:applec:v:58:y:2026:i:32:p:6413-6430
    DOI: 10.1080/00036846.2025.2519958
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