Government Debt Audits, Risk Warning and Investment Efficiency of State-owned Enterprises

Subject to fiscal safeguards and corporate risk containment, enhancing the investment efficiency of state-owned enterprises (SOEs) is a crucial pathway to achieving high-quality economic development in China. This study investigates the impact and mechanism of government debt audits on SOE investment efficiency using a sample of state-owned A-share listed companies on the Shanghai and Shenzhen stock exchanges from 2008 to 2020. The findings reveal that: (1) A non-linear relationship exists between local government debt and SOE investment efficiency. Moderate levels of local government debt contribute to improved SOE investment efficiency. However, as the local government debt ratio rises, particularly when it exceeds warning thresholds, SOE investment efficiency significantly declines. (2) Government debt audits significantly enhance SOE investment efficiency through monitoring effects and information effects, specifically manifested in curbing overinvestment and alleviating underinvestment. (3) Government debt audits play a risk warning role: when debt risks are elevated (i.e., exceed warning indicators), the audit agencies issue risk signals to debt management authorities. This facilitates the containment of local government debt within reasonable bounds, subsequently improving SOE investment efficiency. Further analysis indicates that the investment governance effects of audits are more pronounced under routine government debt audit implementation and in regions with higher audit quality. Additionally, the current debt warning indicators are rationally calibrated provided that debt risks remain controllable and local financing needs are met. The research conclusions offer significant implications for enhancing SOE investment efficiency, strengthening government debt risk control, optimizing the executive selection mechanisms in SOEs, and improving audit practices.