Mixed Ownership Reform, Government Intervention, and Earnings Quality: Empirical Evidence from Pilot Enterprises in China

Using a sample of mixed ownership pilot enterprises in China from 2014 to 2018, we find that mixed ownership reform (MOR) can improve earnings quality. Thus, improving earnings quality (reducing market friction) is a specific mechanism through which MOR affects economic growth. We also find that the effect of government intervention on earnings quality varies across regions. In high-marketization regions, government intervention cater to the market and it has little or marginal effect on the effect of MOR on earnings quality. However, in low-marketization regions, government weakens the effect of MOR on earnings quality. MOR and reduced government intervention have complementary effects on earnings quality. MOR is not a one-size-fits-all formula, and it should be tailor-made according to local conditions (such as marketization levels).