Abstract: County governance can ensure peace throughout the country. Whether the reform of “expanding power and strengthening counties”can improve the performance of enterprises in county-level areas is a theoretical issue that needs to be explored in the process of new-stage urban-rural integration and smoother domestic circulation. Based on the quasi-natural experiment of the “expanding power and strengthening counties”reform in 2002 and the progressive difference- in-differences model, this paper conducts an empirical study to examine the impact of administrative decentralization on enterprise performance. The results show that the reform of“expanding power and strengthening counties”has significantly improved the performance of enterprises. The mechanism test shows that the reform of“expanding power and strengthening counties”improves enterprise performance mainly by reducing the effective tax rate of enterprises and easing the financial constraints of enterprises. Further heterogeneity analysis reveals that the“expanding power and strengthening counties”reform has a significant impact on improving enterprise performance, especially in the enterprises located in areas with higher economic development levels or with a higher enterprise density, and in large-scale enterprises, as well as in capital-intensive industries. The above research indicates that it is necessary to deepen the reform of the division of powers, further promote the modernization of the national governance system, improve governance capabilities, promote the improvement of enterprise quality and efficiency, and promote county-level economic growth.

Key words: “expanding power and strengthen counties”reform, decentralization, enterprise performance, county economy