Does government transparency shape firm decentralization? Evidence from a natural experiment in China

We take advantage of a recent pilot program of e-government reform in China to study whether and how government transparency affects firm decentralization. We construct a reasonable proxy of firm decentralization to reflect the allocation decision rights on the basis of China's unique setting of mandatory disclosure of financial statements of the parent firms and the entire cor-poration. We provide supports on the reliability of firm decentralization proxy and present strong evidence that the improvement of government transparency and accountability significantly enhances firm decentralization. A plausible mechanism is that such reform reshapes firms' external business environment and internal operating efficiency. Results are particularly pro-nounced for firms in areas with low social trust and high corporate attention. Overall, our findings contribute to the research on the effect of government quality on economic activities and orga-nization delegation structure.