The increasing prominence of Chinese SOEs in the global economy necessitates a deeper understanding of factors influencing their investment efficiency. While previous research has examined incentives, supervisory mechanisms, and agency conflicts, this study focuses on the unique role of executive power within the Chinese institutional context. SOE executives often hold quasi-governmental positions, blurring the lines between corporate and political power. This dual nature necessitates a comprehensive analysis of executive influence, considering both 'economic man' (self-interest) and 'social man' (social and political motivations) perspectives. The research questions are: 1) What constitutes executive power influence in SOEs? 2) How does executive power influence affect investment efficiency? 3) Are there moderating factors influencing this relationship? The study aims to fill the gap in existing literature by examining executive power influence comprehensively and within the specific context of Chinese SOEs.

Existing research on the relationship between executive power and investment efficiency generally focuses on either the principal-agent problem or executive personal characteristics. Some studies suggest that executive power can enhance efficiency by facilitating resource allocation, while others highlight the potential for inefficient investment behavior due to self-interest (e.g., private gains, reputation building, risk aversion). The literature also explores the impact of political promotion incentives, equity incentives, and managerial defense strategies on investment efficiency. However, most studies define executive power narrowly, focusing on internal control rather than broader influence. This study addresses this gap by considering the multi-faceted nature of executive power in the specific context of Chinese SOEs, which often involves government appointments and significant external influence.

This study uses data from Shanghai and Shenzhen A-share listed SOEs from 2010 to 2018. Executive power influence is measured using principal component analysis (PCA), incorporating four dimensions: organizational position (administrative level, holding multiple positions, tenure length), personal competence (technical title, political capital, internal promotion), industry influence (industry title, social influence), and prestige influence (social influence, employee advocacy). Table 1 details the indicator system. Table 2 shows the PCA results, indicating the weights assigned to each indicator in the composite score. Investment efficiency is measured using a residual approach based on a regression model of investment on firm growth (Equation 2, Table 4). The absolute value of the residual represents investment inefficiency. The study uses a dual fixed-effects model (Equation 3, Table 5) to test the relationship between executive power influence and investment efficiency, controlling for firm-level (gearing ratio, ROA, cash holding level) and macroeconomic factors (industry and year fixed effects). To examine mediating mechanisms, the study analyzes financing constraints (using the SA index, Table 5) and investment diversification (using the Herfindahl-Hirschman Index, Table 5). Moderating effects are analyzed by including equity concentration and independent director oversight as interactive terms in the regression model (Table 9). Robustness checks include alternative measures of investment efficiency, different lag structures, and two-stage least squares (2SLS) to address potential endogeneity.

The empirical results support the hypothesis that greater executive power is associated with lower investment efficiency. The mediating mechanisms analysis shows that high executive power reduces financing constraints, allowing for increased resource allocation and investment diversification. This diversification, however, leads to inefficient investments. Moderation analysis reveals that higher equity concentration and stronger independent director oversight mitigate the negative effect of executive power on investment efficiency. Table 7 presents the main regression results, demonstrating a positive relationship between executive power and investment inefficiency. Table 8 shows the results of the mediating effects analysis, highlighting the roles of financing constraints and diversification. Table 9 demonstrates the moderating effects of equity concentration and independent director oversight. The findings remain robust across various robustness checks, including alternative measures of investment efficiency, adjustments for lagged variables, and instrumental variables estimation using 2SLS to address endogeneity.

The findings highlight the complex relationship between executive power and investment efficiency in Chinese SOEs. While executive power can facilitate resource acquisition, its excessive concentration can lead to inefficient investments driven by self-interest or political considerations. The mediating mechanisms of financing constraints and diversification underscore the pathways through which executive power influences investment outcomes. The moderating effects of equity concentration and independent director oversight suggest that effective corporate governance structures can mitigate the negative consequences of concentrated executive power. These results have implications for SOE reform and corporate governance in China.

This study contributes to the understanding of executive power and investment efficiency in Chinese SOEs by providing a comprehensive measure of executive power influence and examining its impact through mediating and moderating mechanisms. The findings suggest the need for continued SOE reforms to promote market-oriented decision-making, strengthen corporate governance, and enhance the oversight of executive power. Future research could explore the generalizability of these findings to non-listed SOEs and examine the long-term consequences of executive power on firm performance and sustainability.

The study's limitations include its focus on listed SOEs, potentially limiting the generalizability of findings to all SOEs. The reliance on a specific model for measuring investment efficiency could also influence the results. Future research should consider broader samples of SOEs and explore alternative measures of investment efficiency. Additionally, while the study addresses potential endogeneity, it acknowledges the limitations of the chosen instrumental variables approach.