Abstract: Based on the implementation of the mixed ownership reform, this paper analyzes the impact of state-owned equity participation on overinvestment of private enterprises, and explores how to play the governance effect of state-owned equity on overinvestment of private enterprises. The results show that: the existence of the largest shareholders′ controlling private interests is one of the reasons leading to overinvestment of private enterprises, and the private interest of its control is positively related to the overinvestment of the enterprise; the largest shareholder′s share proportion is negatively related to the possibility of overinvestment. The proportion of state-owned equity participation also has a reverse U-shaped relationship with private enterprises′ overinvestment. Only when the proportion of participation is greater than the cost threshold of supervision, the supervision of state-owned shares to the largest shareholder of private enterprises can alleviate the over investment of private enterprises.Therefore, not all private enterprises are suitable for participation in “mixed ownership reform”, the proportion of state-owned shares participating in private enterprises should be in a reasonable range. The most important thing is the integration of control rights. We should avoid the government′s excessive intervention in private enterprises. Only by changing the original goals of both parties, can we achieve mutual benefits and win each other′s resources.

Key words: mixed ownership reform, overinvestment, cost-effectiveness threshold, incremental cost-effectiveness ration (ICER)