The economic reform in China in the early 1980s brought changes to the governance mechanism of its state owned forestry enterprises (SOFEs) whose managers gained autonomy and additional control rights of the enterprises while being asked to handle some social burdens. In this paper a principal-agent model is used to explain why these changes weakened governmental regulatory and resource constraints and led to financial and forest resource crises in these enterprises between the late 1980s and early 2000s. Further, empirical evidences show that information asymmetry and political tasks have negative impacts on the financial performance of timber-dependent SOFEs. These results may have policy implications on reforming the governance mechanism of SOFEs in China and elsewhere.
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Vol. 18 • No. 2