Tsinghua SEM Professor of Finance HUANG Zhangkai‘s paper “Hayek, Local Information, and Commanding Heights: Decentralizing State-Owned Enterprises in China” was recently accepted for publication in the prestigious journal of American Economic Review. The paper was co-authored with Professor LI Lixing from China Center for Economic Research, Peking University, Professor MA Guangrong from School of Finance, Renmin University of China and Dr. XU Lixin from Development Research Group of World Bank.

In the paper, the authors discussed the Hayek (1945) ‘s argument that local information is a key to understanding the efficiency of alternative economic systems and whether production should be centralized or decentralized. The authors find that the Chinese experience of decentralizing SOEs confirms this insight——when the distance to the government is farther, the SOE is more likely to be decentralized, and this distance-decentralization link is more pronounced with higher communication costs and greater firm-performance heterogeneity. However, when the Chinese central government oversees SOEs in strategic industries, the distance-decentralization link is muted. The authors also consider alternative agency-cost-based explanations, and do not find much support.

Professor HUANG Zhangkai

Professor HUANG Zhangkai is an Associate Professor from the Department of Finance at Tsinghua SEM. Professor HUANG’s main research area is corporate finance. He is carrying out research projects in capital structure, privatization, and private equity.