Directors Appointed by Private Shareholders and Inno-vation Strategy of State-owned Enterprises
With the continuous development of Chinese economic market,private enterprises have increasingly played a pivotal role in the national economy.To better facilitate the integrated development of state-owned enterprises(SOEs)and private enterprises,optimize the governance structure of SOEs,and enhance their operational efficiency,the government has promoted mixed-ownership reforms.Based on this background,private shareholders have entered state-owned enterprises through investment and have obtained the right to appoint directors to SOEs.This practice aims to enrich corporate governance structures by introducing diversified shareholder entities,thereby improving decision-making efficiency and competitiveness of the companies.Innovation is the core of a nation's progress and the driving force behind a country's prosperity and development.The report of the 20th National Congress of the Communist Party of China proposed to accel-erate the implementation of the innovation-driven development strate-gy,oriented by national strategic needs,to concentrate efforts on orig-inal and leading scientific and technological research,and to enhance independent innovation capabilities.The state-owned economy,as the main body of China's independent innovation and an indispensable im-portant part of the national innovation system,is an important force for China to achieve innovation-driven development and improve indepen-dent innovation.As a crucial component of the state-owned economy,SOEs must achieve breakthroughs in innovation capabilities to become globally competitive and influential enterprises.There are two primary sources of enterprise innovation capability:internal R&D investment and external technology mergers and acquisitions(M&A).Enterprises face high risks and time-consuming challenges when relying solely on internal R&D,whereas external technology M&A enables them to acquire the target company's technological expertise within a shorter timeframe.Consequently,many technology M&A activities motivated by acquiring the target company's innovation capabilities have emerged in the M&A market.Currently,few scholars have discussed the inno-vation decisions of SOEs from the perspective of innovation strategies.Therefore,exploring the factors that affect the choice between internal R&D investment and external technology mergers and acquisitions as two innovation strategies for SOEs has important theoretical and prac-tical significance.Our study examines the effect of the market-oriented reform of mixed ownership in SOEs from the perspective of empowering directors ap-pointed by private shareholders based on their"entry rights".Taking Shanghai and Shenzhen A-share SOEs from 2007 to 2021,this paper investigates the impact of private shareholders on the innovation strat-egy of SOEs.The results show that:(1)directors appointed by private shareholders can improve the internal self-independent innovation while exerting no significant effect on external technology M&As of SOEs.(2)Cross-sectional tests show that the in local SOEs,SOEs with a higher degree of technology integration between state-owned and pri-vate enterprises,and SOEs with a lower level of substantive innovation,the role of directors appointed by private shareholders in promoting independent innovation is more pronounced.(3)Directors appointed by private shareholders primarily exert their supervisory functions,stra-tegic decision-making functions,and resource provision functions to influence SOEs'innovation development strategies.This paper contributes to the existing literature in three aspects.First,from the perspective of private capital investment,this paper supple-ments the relevant research on the innovation strategy of SOEs,pro-viding effective evidence to promote independent innovation in SOEs.The paper argues that after investing in SOEs,private shareholders will strongly advocate for internal R&D investment in SOEs,based on con-siderations such as effectively exercising shareholder rights,controlling corporate risks,and pursuing the preservation and appreciation of in-vested capital in a more proactive and prudent manner.This is because that if SOEs choose external technology mergers and acquisitions,pri-vate shareholders may face difficulties in exercising shareholder rights and controlling innovation risks due to excessively long equity chains,ultimately leading to the inability to preserve and increase the value of private investments.By analyzing the factors influencing SOEs'innovation decisions from the perspective of private capital investment intentions,this paper provides useful information for decision-making in the research on independent innovation in China's SOEs.Second,our work provides incremental research on the internal mecha-nism of private shareholders appointing directors in SOEs.By applying the event of private capital being able to invest in state-owned listed companies through direct investment methods such as purchasing equity following the completion of the non-tradable share reform in 2007,our work focuses on the appointment of private shareholders as directors to listed SOEs in accordance with the Company Law.It inte-grates the concept of"access rights"embodied in the appointment of private directors into the research on innovation strategies of SOEs.By introducing the theoretical framework of Rajan and Zingales,the paper analyzes the underlying mechanisms of private directors'impact on SOEs,including their supervisory functions,strategic decision-making roles,and resource provision functions.It illustrates the internal logic and practical pathways through which private directors promote the strategy of internal R&D investment in SOEs,thereby enriching the re-search framework of corporate governance in SOEs and expanding the research on the functions and scope of directors from the perspective of property rights theory.Third,this paper offers a new perspective and empirical evidence for understanding the innovation efficiency of SOEs.In recent years,there has been a significant upward trend in the innovation investment of SOEs.The"State-owned Enterprise Three-year Action"concluded suc-cessfully in 2022,with central enterprises reaching an R&D investment intensity of 2.5％.Although operating income grows rapidly,the inten-sity of innovation investment has remained stable.This paper divides the overall research scenario into two scenarios:before and after the appointment of directors by private shareholders.By analyzing the re-lationship between R&D investment and innovation output,enterprise value,and capital market response of SOEs,our work characterizes the innovation efficiency of SOEs under the context of decentralization and market-oriented reforms.The evidence shows that private shareholders can effectively participate in the decision-making of SOEs through the appointment of directors,and SOEs can effectively allocate resources based on this,thereby enhancing their own innovation efficiency.This finding has certain reference significance for the reasonable and fair evaluation of the innovation efficiency of SOEs.
State-owned EnterprisesSelf-independent InnovationBoard Directors Appointed by Private ShareholdersPrivate Share-holdersCorporate Governance
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