Why do state-owned enterprises over-invest? Government intervention or managerial entrenchment

In a transition economy, corporate investment decisions are affected not only by managerial discretion, but also by government intervention. Using the data of publicly listed state-owned enterprises (SOEs) in China, we investigate how government intervention and corporate managerial entrenchment affect over-investment. The results show that both the policy burden from government intervention and rent-seeking due to managerial entrenchment can lead to over-investments, and these two effects appear to be complementary to each other. With a weak government intervention, managerial discretion is greater and management behavior tends toward opportunism.