Guidance Certification Effect and Governance Supervision Effect of Government Investment Funds
Round 1
Reviewer 1 Report
Comments and Suggestions for Authors
This is a thorough study of the effects of government investment on firm value. The authors should be commended for putting the data together.
I have four critical comments, however:
1. Firm value is an unreliable measure of efficiency. The authors claim that government investment counteracts market failure. But it can also exacerbate market failure by creating monopoly power. That would indeed raise firm value, but be a sign of worsened inefficiency.
2. Another possible explanation for improvements in firm value may be that government participation effectively reduces risk for private investors. That is not necessarily a sign of improved efficiency. It could be the opposite.
3. As far as I can see, the validity of the intermediation effect in Section 4.3 requires the error terms in the two equations to be uncorrelated. I suspect that they are correlated. That makes SA an endogenous variable in the second equation. Consistent estimation then requires at least one valid instrument that is not part of the second equation. I recommend that the authors look for such an instrument and then reestimate the two-equation system with two-stage (or three-stage) least squares.
4. The finding that government involvement strongly improves market efficiency contradicts large parts of the international research literature. I recommend treading a little more cautiously at this point and take more care in citing opposing research.
Author Response
Thank you very much for taking the time to review this manuscript. Please find the detailed responses below and the corresponding revisions/corrections highlighted/in track changes in the re-submitted files.
Comments 1: [Firm value is an unreliable measure of efficiency. The authors claim that government investment counteracts market failure. But it can also exacerbate market failure by creating monopoly power. That would indeed raise firm value, but be a sign of worsened inefficiency.]
Response 1: [The reason why this paper chooses company value as an explanatory variable is that company value is a measure of the total value of cash flows that an enterprise can generate in the future, reflecting investors' expectations of investment returns, which can assess the overall strength of an enterprise and its potential for future development, and it is an important indicator for judging the effect of investment by government investment funds. However, the existing literature pays less attention to the effect and mechanism of the government investment fund on enterprise value, therefore, this paper focuses on the changes in enterprise value and the mechanism of the government investment fund, rather than the issue of enterprise efficiency. Secondly, regarding the possible effect of government investment funds on enterprise value, this paper presents and analyses the competing hypotheses in Hypothesis 1.]
Comments 2: [Another possible explanation for improvements in firm value may be that government participation effectively reduces risk for private investors. That is not necessarily a sign of improved efficiency. It could be the opposite.]
Response 2: [The reviewer's second comment is in the same context as the first comment, and this was answered in the first reply.]
Comments 3: [As far as I can see, the validity of the intermediation effect in Section 4.3 requires the error terms in the two equations to be uncorrelated. I suspect that they are correlated. That makes SA an endogenous variable in the second equation. Consistent estimation then requires at least one valid instrument that is not part of the second equation. I recommend that the authors look for such an instrument and then reestimate the two-equation system with two-stage (or three-stage) least squares.]
Response 3: First of all, we would like to thank the reviewers for their comments. The problem of endogeneity is of great concern to us and we started looking for instrumental variables at the research design stage, but unfortunately, it is very difficult to find good instrumental variables; therefore, in order to solve the problem of endogeneity, we also tried other methods, such as: placebo test, baseline variable lag, etc. In order to study the impact and trajectory of the government investment fund, and to prove that the government investment fund plays a role in guiding the certification effect and the governance and supervision effect, this paper constructs two models, and the reviewer suggests that there may be endogeneity problems caused by omitted variables and model fitting with respect to model I and model II, and we think that the use of the placebo test can control endogeneity problems to some extent, and of course model I and model II can also be used. It would be better to find appropriate instrumental variables. So this is one of the limitations of the research in this paper, and we will continue to conduct research in this area in the future, and we will work to resolve this limitation. Conclusion 6th paragraph, line [663-666].
Comments 4: [The finding that government involvement strongly improves market efficiency contradicts large parts of the international research literature. I recommend treading a little more cautiously at this point and take more care in citing opposing research.]
Response 4: [The reviewer's findings and conclusions are contradictory to most of the international literature, which we have also noted. Firstly, the research object of this paper is China's government investment fund and the Chinese market, although the government investment fund is a policy tool that did not originate in China, it has developed Chinese characteristics in China over the years, and it has certain specificities compared to foreign government investment funds; secondly, the economic effects generated by government investment funds are complex and diversified, and this paper only explores the effects and mechanisms of government investment funds from the perspective of enterprise value. Secondly, the economic effects produced by government investment funds are complex and diversified, this paper only explores the impact effect and mechanism of government investment funds from the perspective of enterprise value, and finds that government investment funds enhance the value of invested enterprises through the guidance certification effect and governance supervision effect, rather than examining the economic consequences of government investment funds in an all-rounded way, so it may produce conclusions opposite to those in other literature; lastly, this paper has gone through a variety of robustness tests, and must have some special characteristics compared with foreign government investment funds. various robustness tests, which can guarantee the robustness of the research findings to a certain extent. To sum up, it may be reasonable for the findings of this paper to be contrary to those of the international literature.]
Reviewer 2 Report
Comments and Suggestions for Authors
REVIEW OF SUBMISSION TO INTERNATIONAL JOURNAL OF FINANCIAL STUDIES – 2951379– “RESEARCH ON GUIDANCE CERTIFICATION EFFECT AND GOVERNANCE SUPERVISION EFFECT OF GOVERNMENT INVESTMENT FUNDS”
Summary of the paper
This paper uses data from the People’s Republic of China to investigate the impact, on enterprise value, of shareholding by government investment funds. The first hypothesis posits a positive association. The second and third hypotheses respectively conjecture that guidance certification and governance supervision are mechanisms causing this positive association. Naturally, the second and third hypotheses are predicated on the first hypothesis.
Ordinary Least Squares regressions are estimated. In tests of the first hypothesis, the dependent variable is Tobin’s Q, a measure of enterprise value. The independent variable of interest is a dummy, flagging observations subject to shareholding by a Government Investment Fund. A three-regression methodology is used to test the second hypothesis. The aforementioned regression (for testing the first hypothesis) is treated as the baseline model. The second model uses an intervening variable, a measure of financial constraints, as the dependent variable. The independent variable of interest is the dummy, flagging observations subjected to shareholding by the Government investment fund. The third regression is an augmented version of the baseline model, with the measure of financial constraints added as an independent variable.
The following results would support the second hypothesis. A positive coefficient, attaching to the government investment fund dummy, in the second model, would suggest that companies subjected to government investment do face higher financial constraints. Positive coefficients of both the government investment dummy and the measure of financial constraints, in the third model, would indicate that each is positively associated with enterprise value, controlling for the effect of the other. The coefficient of the government investment dummy, in the augmented model, being different from its counterpart in the baseline model, would indicate that financial constraints alter the impact on enterprise value of government investment.
The methodology for testing the third hypothesis is analogous to the methodology for testing the second hypothesis. For tests of the third hypothesis, the intervening variable is the natural logarithm of one plus the number of government-related investors with shareholding in the company. This is interpreted as a measure of the degree of government influence and hence monitoring on the company.
The final sample comprises 28,965 company-year observations, selected from the China Stock Market and Accounting Research database, over the investigation period 2011-2021. The government investment data are manually collected from CVSource and ChinaVenture. Data for the other variables are collected from CSMAR.
I stopped my review at the descriptives statistics.
Critical review
Motivation
The business and academic motivations are argued lucidly.
Introduction
This section of the paper is too long. The introduction should present a summary of the paper and identify its novel aspects. The paper should have a separate section, containing an expose of unique institutional features of the People’s Republic of China. It should also contain a separate section with the literature review. I have treated the content appropriate for these sections, currently in the introduction, as thought they were separate sections.
Literature review
The literature review presents an informative discussion of prior evidence about the association between shareholder value and the level of government investment. I have some suggestions for improvement.
The literature review should acknowledge that the consensus of international evidence suggests that this association follows an inverted U (Wang and Shailer, 2018; Boubakri, Chen, El Ghoul, Geudhami and Nash, 2020).
The authors should argue that their paper makes a unique contribution by investigating the impact of government shareholding per se, rather than the level of government shareholding. This enables their paper to circumvent the issues of specifying the association between enterprise value and the level of government shareholding and identifying the turning point of the inverted U.
Hypothesis development
The authors provide lucid coverage of opposing arguments as to why government shareholding may increase and decrease shareholder wealth.
I suggest that they narrow the focus to the two specific mechanisms they investigate. In this context, they should acknowledge that the impact of government shareholding per se on shareholder wealth may depend on the type of government shareholder (Fraser, Zhang and Derashid, 2006).
The first hypothesis should be deleted. It merely re-states two globally accepted possibilities. It is understood that which of these two positions prevails depends on the institutional context and level of government shareholder. I suggest they replace H1 will the following.
“Shareholding by government investment funds per se enhances enterprise value.”
H2 and H3 are argued lucidly.
Research design
The principal tests of H1 does not control for endogeneity. This is a critical mistake. The government chooses its investee companies based on fundamentals. This problem could be addressed by observing the independent variables at a one-year lag from the dependent variable.
There is no argumentation as to the economic rationales for the control variables.
It is surprising that fixed industry effects are not included as controls.
The basic approach to testing H2 and H3 is sound. However, the methodology should be explained in the methodology section, rather than in the discussion accompanying the presentation of results.
I do not accept the measure of financial constraints. Surely a version of Altman’s Z (1968) score would be more suitable. The augmented version of the baseline model is a truism. The former has company size and age both within the dependent variable and as independent variables.
In the tests of H3, the authors should argue their measure of government influence, with regard to the unique institutional environment investigated. A more standard metric would be the percentage of shares held by government-related investors.
I suggest the authors delete the remaining analyses. They are not covered in the “front end” of the paper and appear to be an afterthought.
Descriptive statistics
There should be more economic interpretation of the univariate statistics presented in Table 2.
There is no bivariate correlation matrix.
The remainder of the paper
I did not review the remainder of the paper. The aforementioned concerns must be addressed, for meaning empirical analysis to be conducted.
References in this report, not in the paper
Altman, E., 1968, “Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy”, Journal of Finance 23 (4), 589-609.
Boubakri, N., R. Chen, S. El Ghoul, O. Geudhami and R. Nash, 2020, “State Ownership and Stock Liquidity: Evidence from Privatisation”, Journal of Corporate Finance 65, 1-26. https://doi.org/10.1016/j.jcorpfin.2020.101763
Fraser, D., H. Zhang and C. Derashid, 2006, “Capital Structure and Political Patronage: The Case of Malaysia”, Journal of Banking and Finance 30 (4), 1,291-1,308. https://doi.org/10.1016/j.jbankfin.2005.05.008
Wang, K. and G. Shailer, 2018, “Does Ownership Identity Matter? A Meta-analysis of Research on Firm Financial Performance in Relation to Government versus Private Ownership”, Abacus 54 (1), 1-35. https://doi.org/10.1111/abac.12103
Author Response
Thank you very much for taking the time to review this manuscript. Please find the detailed responses below and the corresponding revisions/corrections highlighted/in track changes in the re-submitted files.
Comments 1: [Introduction
This section of the paper is too long. The introduction should present a summary of the paper and identify its novel aspects. The paper should have a separate section, containing an expose of unique institutional features of the People’s Republic of China. It should also contain a separate section with the literature review. I have treated the content appropriate for these sections, currently in the introduction, as thought they were separate sections.]
Response 1: [The introduction to this study has been shortened, as not to be too long, particularly paragraphs [1-3, paragraph 3 (from line 41 to 46)], and paragraphs [6-8].]”
Comments 2: [Literature review
The literature review presents an informative discussion of prior evidence about the association between shareholder value and the level of government investment. I have some suggestions for improvement.
The literature review should acknowledge that the consensus of international evidence suggests that this association follows an inverted U (Wang and Shailer, 2018; Boubakri, Chen, El Ghoul, Geudhami and Nash, 2020).
The authors should argue that their paper makes a unique contribution by investigating the impact of government shareholding per se, rather than the level of government shareholding. This enables their paper to circumvent the issues of specifying the association between enterprise value and the level of government shareholding and identifying the turning point of the inverted U.
Hypothesis development
The authors provide lucid coverage of opposing arguments as to why government shareholding may increase and decrease shareholder wealth.
I suggest that they narrow the focus to the two specific mechanisms they investigate. In this context, they should acknowledge that the impact of government shareholding per se on shareholder wealth may depend on the type of government shareholder (Fraser, Zhang and Derashid, 2006).
The first hypothesis should be deleted. It merely re-states two globally accepted possibilities. It is understood that which of these two positions prevails depends on the institutional context and level of government shareholder. I suggest they replace H1 will the following.
“Shareholding by government investment funds per se enhances enterprise value.”]
Response 2: [The literature has been modified and contributed to the study, particularly in the second paragraph of the literature review section on line [134-140]; in the third paragraph on line [150-157]; and in paragraph 5 on line [202-208].
Comments 3: [There is no argumentation as to the economic rationales for the control variables.]
Response 3: [Referring mainly to (Tao Feng et al., 2023), firm-level indicators are selected as control variables
Tao Feng,Zhu Pan,Qiu Chuzhi et al. Research on the impact of digital technology innovation on enterprise market value[J]. Research on Quantitative and Technical Economics,2023,40(05):68-91.]
Comments 4: [Descriptive statistics. There should be more economic interpretation of the univariate statistics presented in Table 2.]
Response 4: [ The interpretation of the statistical description has been updated, particularly on line [3241-343].
Comments 5: [There is no bivariate correlation matrix.]
Response 5: [The bivariate correlation has been adjusted. However, the numbering of the sub-headings and the tables have been updated respectively 4.2. Bivariate correlation matrix, 4.3. Benchmark regression, 4.4. Intermediation mechanism test, 4.5. Moderating effect test, 4.6. Robustness test, 4.7. Heterogeneity test, and Table 3. Bivariate correlation, Table 4. Benchmark regression, Table 5. Tests for intermediation effects, Table 6. Moderating effect test, Table 7. Robustness test, Table 8. Classification of polluting industries, Table 9. Pollution industry group regression, Table 10. Regional grouping regression, Table 11. Equity nature grouping regression]
Comments 6: [It is surprising that fixed industry effects are not included as controls.]
Response 6: [This paper controls for fixed effects at the individual firm level and in the time dimension, and therefore does not control for industry-level fixed effects]
Comments 7: [The principal tests of H1 does not control for endogeneity. This is a critical mistake. The government chooses its investee companies based on fundamentals. This problem could be addressed by observing the independent variables at a one-year lag from the dependent variable.]
Response 7: [This paper focuses on the endogeneity problem in the regression and analyses it in the robustness test section, firstly, using a placebo test to deal with the endogeneity problem due to omitted variables; secondly, using a treatment effects model to address the endogeneity problem due to possible sample bias; and thirdly, using the lagged term of the dependent variable for the endogeneity test.]
Comments 8: [In the tests of H3, the authors should argue their measure of government influence, with regard to the unique institutional environment investigated. A more standard metric would be the percentage of shares held by government-related investors.]
Response 8: [The reason why this paper chooses to use the number of shareholding institutions to measure the governance supervision effect is that this paper proposes in the theoretical analysis part that the government investment fund may be able to deeply participate in the common governance of the investee firms by attracting more institutional investors to pay attention to and invest in the investee firms and to strengthen the supervision effect on the investee firms, which will in turn improve the governance ability of the investee firms and achieve the enhancement of the firms' value, so the more different institutional shareholding, indicating that there are more different bodies participating in the common governance and supervision of the enterprise, the more likely to bring more resources and governance and supervision effects. Therefore, this paper chooses to measure the number of shareholding institutions rather than the percentage of shareholding.]
Comment 9: [I suggest the authors delete the remaining analyses. They are not covered in the “front end” of the paper and appear to be an afterthought.]
Response 9: [The remaining part includes moderating effects analysis and heterogeneity analysis, which we believe are equally important. The moderating effect analysis of enterprise age and enterprise size can be used to test the direction and effect of these two indicators in the impact of government investment funds on enterprise value, and provide theoretical and evidence support for the formulation of investment policies by government investment funds. Heterogeneity analysis can likewise be used to analyse the impact of government investment funds on different types of enterprise value, making the study richer.]
Round 2
Reviewer 1 Report
Comments and Suggestions for Authors
The authors have responded to me, the reviewer, regarding my comments, but have done too little to incorporate those responses in the manuscript. Two main points must be improved:
1. The authors must make it crystal clear that they estimate the effect of government investment on firm value and not on efficiency. They should also point out how firm value may rise even as efficiency is worsened, in at least the two ways that I mentioned, namely (i) increased monopoly power and (ii) inefficient subsidisation of risk.
2. The presentation of equations (2) - (5) should make it clear that the authors assume the error terms to be uncorrelated and that a possible non-zero correlation would make SA and N, respectively, endogenous, so that the results may be biased. The short mention at the very end of the concluding section is not enough. Being unable to identify a suitable instrument is fair. However, the possible bias thus introduced should be openly recognized.
Author Response
Comments 1: [The authors must make it crystal clear that they estimate the effect of government investment on firm value and not on efficiency. They should also point out how firm value may rise even as efficiency is worsened, in at least the two ways that I mentioned, namely (i) increased monopoly power and (ii) inefficient subsidisation of risk..]
Response 1: A: [Firstly, the research of this paper focuses on the effect of government investment funds on enterprise value and the path of action, rather than the effect of government investment funds on enterprise efficiency, therefore, changes in enterprise efficiency is not within the scope of this paper; Secondly, the reviewer suggests that how the enterprise value rises in the face of efficiency loss, the object of this paper is the government investment fund, which is an innovative way of using financial funds,. Different from the monopoly and financial subsidies and other traditional direct government intervention in the market, which may lead to the deterioration of efficiency, the government investment fund is funded by the financial funds alone or jointly funded with social capital to set up, the use of equity investment and other market-oriented methods, select professional fund managers to carry out the day-to-day operation of the public sector of the government is not involved in the daily management of the fund, to guide the community of various types of capital investment in key areas and weak links of economic and social development, to support the key economic and social development It guides various types of social capital to invest in key areas and weak links of economic and social development, and supports the development of related industries and fields, with the emphasis on "government participation and market-oriented operation"; therefore, the government investment fund has the dual attributes of government and market, and guarantees the efficiency of market operation while being guided by the government, so the government investment fund does not necessarily result in a loss of efficiency.]
Comments 2: [The presentation of equations (2) - (5) should make it clear that the authors assume the error terms to be uncorrelated and that a possible non-zero correlation would make SA and N, respectively, endogenous, so that the results may be biased. The short mention at the very end of the concluding section is not enough. Being unable to identify a suitable instrument is fair. However, the possible bias thus introduced should be openly recognized.]
Response 2: [This paper assumes that the error terms of the two models are uncorrelated, as follows. The relaxation of the assumptions leads to the possibility that the results of the mediation test may be biased estimates, therefore, this paper uses different methods to control the bias of the results due to endogeneity in the robustness test.]
Reviewer 2 Report
Comments and Suggestions for Authors
REVIEW OF SUBMISSION TO INTERNATIONAL JOURNAL OF FINANCIAL STUDIES – 2951379R1– “RESEARCH ON GUIDANCE CERTIFICATION EFFECT AND GOVERNANCE SUPERVISION EFFECT OF GOVERNMENT INVESTMENT FUNDS”
Preliminary note
Since my previous recommendation was to reject the paper, I have refereed this paper as thought it was a first submission. Hence, I have repeated some of the comments from my report of the previous version.
Summary of the paper
This paper uses data from the People’s Republic of China to investigate the impact, on enterprise value, of shareholding by government investment funds. The first hypothesis posits a positive association. The second and third hypotheses respectively conjecture that guidance certification and governance supervision are mechanisms causing this positive association. Naturally, the second and third hypotheses are predicated on the first hypothesis.
Ordinary Least Squares regressions are estimated. In tests of the first hypothesis, the dependent variable is Tobin’s Q, a measure of enterprise value. The independent variable of interest is a dummy, flagging observations subject to shareholding by a Government Investment Fund. Sobel’s (1982) test is used to test the other two hypotheses. For tests of the second hypothesis, the intervening variable is a measure of financial distress, estimated using company size and age, according to an equation from a prior study. For tests of the third hypothesis, the intervening variable is one plus the natural logarithm of the number of government investors with shares in the company. The authors interpret this as a measure of the degree of government involvement in the listed company.
The final sample comprises 28,965 company-year observations, selected from the China Stock Market and Accounting Research database, over the investigation period 2011-2021. The government investment data are manually collected from CVSource and ChinaVenture. Data for the other variables are collected from CSMAR.
The results support all three hypotheses. Robustness analyses indicate that the results in the body of the paper are not driven by correlated omitted variable, self-selection bias or the possibility that government investment is endogenous to enterprise value.
Critical review
Literature review
The literature review is contained within the two penultimate paragraphs of the introduction. The literature review is coherent, except that the three papers I suggested in my previous review have been cited incorrectly. My suggestions for rectification are as follows.
Wang and Shailer (2018) and Boubakri, Chen, El Ghoul, Geudhami and Nash (2020) investigate the impact on shareholder wealth of the degree of government investment. The balance of literature is inconclusive as to the specification of this association and what this specification depends on. The hypotheses of the current study relate to the impact of government shareholding per se, without considering the degree. Hence, issues associated with specifying the association and its turning point(s) are circumvented. This is a strength of the study.
The results of Fraser, Zhang and Derashid (2006) indicate that the impact on shareholder wealth, of government shareholding, may depend on the type of government shareholder. The research design of the study being refereed does not distinguish types of government investors. This is a limitation biasing against finding significant results. Hence, the credibility of the significant results reported is enhanced. I suggest the authors explain this in the conclusions section, in their coverage of limitations of the study and the impacts of these limitations.
Hypothesis development
On the top of p.4, the paper mentions “market failure theory” in coverage of a rationale for lack of government intervention. The opposite theory is consistent with this position! Instead of referencing market failure theory, it would be more appropriate to discuss Adam Smith’s “invisible hand” (Smith, 2000).
Hypothesis 1, in its current form, adds nothing to the paper. The authors merely state, as two arms of the hypothesis, two opposite positions that are subject to debate in the literature. I suggest the authors replace H1 with the conjecture that in the specific context investigated, shareholding by a government investment fund enhances enterprise value.
The discussion of local governments, on p.5, contains no within-text citations at all.
The discussion generating H2 applies agency theory, in the context of the relationship between government shareholders and their investee listed companies. I recommend citation of Kay and Thompson (1986), to argue this position.
H3 is argued lucidly.
Methodology
The authors have not argued the economic rationale for the control variables.
Sobel’s test (1982) is used to test H2 and H3. This methodology should be explained in the methodology section, rather than the discussion accompanying the results tables.
The mediating variable for tests of H3 (proxying the degree of government input into the management of the listed company) is the natural logarithm of one plus the number of government investors (with shares in the relevant company). Motivate this proxy, in the specific institutional context. A more typical proxy is the percentage of shares held by government-related investors.
Descriptive statistics
The discussion accompanying Table 3 should provide economic interpretation of significant correlations.
Empirical results
I suggest that Table 6 and the accompanying discussion should be deleted. This adds nothing to the paper and is not mentioned in the “front end”.
Otherwise, the empirical analysis is rigorous and interpreted lucidly.
Presentation
Colloquial language has been used. Examples include “in line with”, “on one hand”, “besides”, “on the other hand” and “at the same time”,
Some readers would not be familiar with “ST” as an abbreviation for “Special Treatment”, in the People’s Republic of China. The authors should write out this term in full.
References in this report, not in the paper
Kay, J. and D. Thompson, 1986, “Privatisation: A Policy in Search of a Rational”, The Economic Journal 96 (381), 17-32.
Smith, A., 1723-1790. The Wealth of Nations. New York: Modern Library, 2000.
Sobel, M., 1982, “Asymptotic Confidence Intervals for Indirect Effects in Structural Equation Models”, Sociological Methodology 13, 290-312. http://www.jstor.org/stable/270723 .
Author Response
Comments 1: [The literature review is contained within the two penultimate paragraphs of the introduction. The literature review is coherent, except that the three papers I suggested in my previous review have been cited incorrectly. My suggestions for rectification are as follows.
Wang and Shailer (2018) and Boubakri, Chen, El Ghoul, Geudhami and Nash (2020) investigate the impact on shareholder wealth of the degree of government investment. The balance of literature is inconclusive as to the specification of this association and what this specification depends on. The hypotheses of the current study relate to the impact of government shareholding per se, without considering the degree. Hence, issues associated with specifying the association and its turning point(s) are circumvented. This is a strength of the study.]
Response 1: [Thank you very much for your comment. This part of the litterature review has been reread, well analysed, and changes have been made so that everything is coherent.]
Comments 2: [The results of Fraser, Zhang and Derashid (2006) indicate that the impact on shareholder wealth, of government shareholding, may depend on the type of government shareholder. The research design of the study being refereed does not distinguish types of government investors. This is a limitation biasing against finding significant results. Hence, the credibility of the significant results reported is enhanced. I suggest the authors explain this in the conclusions section, in their coverage of limitations of the study and the impacts of these limitations.]
Response 2: [Increase the limitations of the research in this paper: due to the incomplete disclosure of some of the government investment fund data, resulting in the lack of data on the type of government investment fund and the amount of investment, and can only be measured by a dummy variable to determine whether or not to obtain the investment from the government investment fund, which is a limitation of the research in this paper, and also a future focus of the research direction.]
Comments 3: [On the top of p.4, the paper mentions “market failure theory” in coverage of a rationale for lack of government intervention. The opposite theory is consistent with this position! Instead of referencing market failure theory, it would be more appropriate to discuss Adam Smith’s “invisible hand” (Smith, 2000).]
Response 3: [Thank you very much for your comments and suggestions. Your comments and suggestions have helped us a lot to improve our work.]
Comments 4: [Hypothesis 1, in its current form, adds nothing to the paper. The authors merely state, as two arms of the hypothesis, two opposite positions that are subject to debate in the literature. I suggest the authors replace H1 with the conjecture that in the specific context investigated, shareholding by a government investment fund enhances enterprise value.]
Response 4: [Thanks for your suggestion, hypothesis 1 has been improved.] [manuscript line 237]
Comments 5: [The discussion of local governments, on p.5, contains no within-text citations at all.]
Response 5: [Thank you very much for your comments. Your comments and has helped us a lot to improve our work.]
Comments 6: [The discussion generating H2 applies agency theory, in the context of the relationship between government shareholders and their investee listed companies. I recommend citation of Kay and Thompson (1986), to argue this position.]
Response 6: [Thank you very much for your recommendation, which helps us to improve our work.] [ manuscript line 241-247
Comments 7: [The authors have not argued the economic rationale for the control variables.]
Response 7: [The economic rationale for the lack of control variables proposed by reviewer 2 is that an increase in the shareholding ratio of major shareholders improves the supervision of management by major shareholders, reduces the hollowing out of listed companies by major shareholders and thus contributes to the enhancement of enterprise value; therefore, this paper controls for corporate governance indicators such as shareholding ratio of the first major shareholder, shareholding ratio of the second to tenth largest shareholders, the shareholding ratio of the two concurrent positions, and the proportion of independent directors.] [manuscript line 331-333]
Comments 8: [Sobel’s test (1982) is used to test H2 and H3. This methodology should be explained in the methodology section, rather than the discussion accompanying the results tables.]
Response 8: [Thank you very much for your comment and suggestion, the part of Sobel's test (1982) is used to test H2 and H3 has been improved.]
Comments 9: [The mediating variable for tests of H3 (proxying the degree of government input into the management of the listed company) is the natural logarithm of one plus the number of government investors (with shares in the relevant company). Motivate this proxy, in the specific institutional context. A more typical proxy is the percentage of shares held by government-related investors.]
Response 9: [The governance monitoring effect variable has been replaced by lnP "institutional shareholding ratio". Thank you very much for your comment.]
Comments 10: [The discussion accompanying Table 3 should provide economic interpretation of significant correlations.]
Response 10: [The economic interpretation of the significant correlations in the discussion of Table 3 has been provided. Thank you for your comment.] [manuscript line 354-360]
Comments 11: [I suggest that Table 6 and the accompanying discussion should be deleted. This adds nothing to the paper and is not mentioned in the “front end”.]
Response 11: [Thank you for your suggestion, the part of table has been improved. Some]
Comments 12: [Colloquial language has been used. Examples include “in line with”, “on one hand”, “besides”, “on the other hand” and “at the same time”.]
Response 12: [Thank you very much for your comment. The colloquial language has been corrected.]
Comments 13: [Some readers would not be familiar with “ST” as an abbreviation for “Special Treatment”, in the People’s Republic of China. The authors should write out this term in full.]
Response 13: [ST stocks refer to the stocks of listed companies in China that have suffered losses for two consecutive years and are subject to special treatment (abbreviated as "ST"), which serves to warn investors of investment risks. *ST stocks refer to the stocks of listed companies in China that have suffered losses for three consecutive years and are used to warn investors of the risk of delisting.] [manuscript line 289]
Round 3
Reviewer 2 Report
Comments and Suggestions for Authors
REVIEW OF SUBMISSION TO INTERNATIONAL JOURNAL OF FINANCIAL STUDIES – 2951379R2– “RESEARCH ON GUIDANCE CERTIFICATION EFFECT AND GOVERNANCE SUPERVISION EFFECT OF GOVERNMENT INVESTMENT FUNDS”
Preliminary notes
1. I have not reproduced my summary of this paper. The substance has not changed sufficiently from the previous version.
2. Some of the concerns broached in my previous report have been addressed. I have not mentioned these concerns, in the current report.
Critical review
Theory and hypothesis development
1. Kay and Thompson (1986) has been cited inaccurately. This paper discusses possible reasons why privatization does not always achieves its public policy objectives. I suggest the authors re-locate their coverage of this paper to the discussion on problems associated with government intervention, in the last full paragraph on p.5.
2. A unique contribution of this paper is that it addresses government ownership per se, rather than the degree of government ownership. Hence, I suggest that the formal articulation of H1 be amended. The phrase “per se” should be inserted, so that H1 becomes the following.
H1 – Government Investment Fund ownership per se increases enterprise value.
Methodology
3. Economic rationales for choice of control variables are provided in the authors’ rejoinder to my previous report. This explanation should be inserted into the discussion of control variables in the methodology section, in the last full paragraph on p.8.
Empirical results
4. The current version of the manuscript contains an inserted discussion, related to the results reported in Table 4. This discussion should be augmented with within-text reference(s).
Conclusions
5. The rejoinder from the authors, related to my report of the previous version of the manuscript, explains that they are unable to obtain data on the missions and investment strategies of the different government investment funds. Hence, they cannot distinguish types of funds, on this basis. This explanation in the rejoinder should be re-located to the conclusions, in discussion of limitations of the study.
6. Fraser, Zhang and Derashid (2006) is cited inaccurately. The results of this study point to the importance of distinguishing types of government investment funds, according to their social and economic policy missions. Hence, it would be appropriate to relocate citation of this paper, to discussion of the limitation mentioned in Concern (5) in my current report.
Presentation
7. There are still some instances of colloquial language. Examples include “on the one side”, “on one hand” and “on the other hand”.
8. The shorthand expression “R&D” appears on p.2. Write the term in full.
9. On p.7, Equation (2) has been incorrectly inserted into the space allocated for Equation (3).
10. In Table 1, containing the variable definitions, the final entry (the measure of the degree of government input into the governance of the listed company) has not been updated. The entry should be “ln (1 + percentage of shareholding by government investment funds)”.
Author Response
Response 1: [Thank you very much for your comment and suggestion. The reference has been relocated to improve the document.]
Response 2: [Thank you for your insightful suggestion regarding the articulation of our hypothesis. We appreciate your recommendation to emphasize government ownership per se. Your feedback has been invaluable in refining our research. Thank you once again for your thoughtful contribution.]
Response 3: [Building on existing research by Tao Feng et al. (2023) and considering the basic characteristics of the enterprise and financial information that may influence its value, this study controls for the following financial indicators: enterprise size (SIZE), intangible asset ratio (Intass), asset liability ratio (LEV), total return on assets (ROA), and enterprise age (AGE). Additionally, the increase in the shareholding ratio of major shareholders enhances their supervision of management and reduces their tunneling behavior toward listed companies, thereby increasing corporate value. Therefore, this study also controls for the following corporate governance indicators: the proportion of independent directors (DIR), CEO duality (Duality), the proportion of shares held by the largest shareholder (TOP1), and the proportion of shares held by the second to the tenth largest shareholders (TOP2_10).]
Response 4: [Thank you very much for your suggestion, the discussion in table 4 has been improved to support the results obtained.]
Response 5: [The omission of variables and adjustments in comparison to Model I and Model II can lead to endogeneity issues. Therefore, future research on the certification effect of orientation and the governance supervision effect of public investment funds should incorporate appropriate instrumental variables. Additionally, due to the incomplete disclosure of some government investment fund data, there is a lack of information on the types and amounts of these funds. Consequently, only binary variables can be used to measure whether enterprises have received government investment funds. This represents a limitation of this study and highlights a key direction for future research.]
Response 6: [[Thank you very much for your comment. The document has been updated.]
Response 7: [Thank you very much for your comment. The document has been updated.]
Response 8: [Thank you very much for your remark, R&D has been written out in full.]
Response 9: ["Thank you very much for your comment. We apologize for the oversight and appreciate you bringing it to our attention."]
Response 10: [Thank you for the comment, the containing the variable definition has been updated.]
Round 4
Reviewer 2 Report
Comments and Suggestions for Authors
REVIEW OF SUBMISSION TO INTERNATIONAL JOURNAL OF FINANCIAL STUDIES – 2951379R3– “RESEARCH ON GUIDANCE CERTIFICATION EFFECT AND GOVERNANCE SUPERVISION EFFECT OF GOVERNMENT INVESTMENT FUNDS”
Preliminary notes
1. I have not reproduced my summary of this paper. The substance has not changed sufficiently from the previous version.
2. There are only two remainder concerns, broached in my previous report that have not been fully addressed. I have re-numbered these concerns.
Critical review
1. The definition of lnP in Table 1 is slightly incorrect. It should be “ln (1+percentage of shares owned by government investment funds).
2. The statement in the final paragraph, regarding endogeneity is too specific. I suggest that the authors replace the second sentence with the following.
“It would be appropriate for subsequent empirical studies to use research designs that address this potential endogeneity.”
Author Response
We sincerely appreciate all your comments and suggestions on our work. Your feedback has greatly enhanced our research and has helped us be more diligent in our efforts. Thank you once again for your valuable input.
