Development vs. political views of government ownership: How does it affect investment efficiency?

•Government's participation objective is different based on the firms’ development stages.•If the development view drives a government objective, government ownership is positively related to investment efficiency. This positive relationship is observed among firms in the introduction and decline stages.•If a government's objective is motivated by the political view, then its involvement pursues political goals at the cost of other shareholders, leading to investment inefficiency. This negative relationship is observed among firms in the growth and mature stages.•Government ownership benefits firms with limited resources and the government is less likely to extract resources from firms operating in industries with higher levels of competition. This study connects the development view and political view of government ownership with the firm life cycle theory to explain firms’ investment efficiency. We find that government ownership of firms in the introduction and decline stages is driven by the development view that improves investment efficiency. However, consistent with the political view, higher government ownership worsens firms' investment efficiency in the growth and mature stages. For firms in these two stages, we also find a significant threshold effect of government ownership on investment efficiency. Our results imply that the government's participation objective is different based on the firms’ development stages.