With the rapid growth of market entities after the administrative approval reform, the subsequent growth of these firms has become another important practical issue related to overall economic growth. Theoretically, this paper uses entry costs and size distortion to measure different types of reform in Melitz Model. It proves that the decrease of entry costs will have a negative effect on firm growth, while the decrease of size distortion will have a positive effect. Empirically, based on policy text analysis, this paper constructs measurement indicators for the removal of entry approval and operation approval at the industry-year level, and uses a weighted DID model with entropy balancing matching for analysis.

Specifically, the growth rate of firms decreases by about 8 percent after the removal of entry approval, while increases by about 3 percent after the removal of operation approval. Furthermore, the effects of the two types of reform are different in lag and sustainability. The effectiveness of removing sub-categories of items also differs, and the effects are heterogenous among different types of firms, industries, and regions. Finally, this paper also empirically verifies the theoretical mechanism that the removal of entry approval affects firm growth by changing market equilibrium productivity, while the removal of operation approval affects firm growth by directly affecting the expanding behaviors of firms.

The marginal contributions of this paper are as follows: First, when studying the impact of administrative approval reform on corporate performance, most literature selectively focuses on only one type of the cost effects. In contrast, this paper clearly distinguishes two channels of impact both theoretically and empirically. Second, existing literature mainly discusses the establishment of administrative approval service centers at the regional level, with less discussion on the removal of approval at the industry level. In fact, there are some essential differences between these two ways of reform. This paper helps to achieve a more comprehensive understanding of this policy change. Third, the effectiveness and two sides of policy tools have been a long-debating issue. The disagreement mainly stems from distinguishing different types of policy measures. Existing studies discuss the classification of industrial policies or the selection of policy tools. This paper, however, emphasizes that different measures within the same policy tool may also lead to completely opposite effects.