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Abstract
In this paper we investigate the impact of external monitoring from the government on state-owned enterprise performance, using the variation in monitoring strength arising from a nationwide policy change and firms' geographic location in China. We utilise a structural approach to estimate input prices and productivity separately at the firm level using commonly available production data. We show that enhanced external monitoring, as a key component of corporate governance, can substantially reduce managerial expropriation in procurement (proxied by input prices) and shirking in production management (proxied by productivity). The results suggest that government monitoring can be an effective policy instrument to improve state-owned enterprise performance.

AbstractWe develop a dynamic model to analyze the impact of input tariff liberalization on input prices, trading decisions, and productivity. Although input tariffs directly affect input price benefits of importing, their impact on trade participation generates indirect benefits through productivity improvements and complementarity between importing and exporting. To disentangle these effects, we separately measure importing's effect on input prices and productivity and examine Chinese paint manufacturers' reaction to input tariff liberalization. We find that a mild short‐term effect of tariff liberalization is amplified in the long run by induced trade participation, resulting in even higher productivity and lower input prices.