Mixed ownership reform, political connections, and overinvestment

The study discovers that mixed ownership reform aimed at enhancing the performance and resource allocation efficiency of state‐owned enterprises may have unintended consequences in China. When the nature of state‐owned control remains unchanged, there is a risk of increased overinvestment due to misaligned interests between state‐owned equity representatives and companies. This incentive can be mitigated by introducing nonstate shareholders with political connections. The study employs a double machine learning method to analyze data from state‐owned listed companies that introduced nonstate shareholders through stock issuance between 2008 and 2019. The research underscores that modern corporate governance mechanisms are crucial for successful mixed ownership reform.