Do Chinese government subsidies affect firm value

By Edward Lee, Martin Walker, Cheng (Colin) Zeng. 2014

197 citations recorded by the source corpus.

Consistent with the prevailing socio-political ideology of China, the Chinese government offers financial assistance to firms, including many listed companies. Government subsidies are provided for several reasons including support for investment, support to enable firms to pursue social objectives, and support to prop up ailing firms in order to protect jobs. We examine the value relevance of government subsidies for Chinese listed companies and structure our study around three questions. First, whether the subsidies received by Chinese listed companies are value relevant consistent with their time-series properties. Second, whether the value relevance of subsidies depends on the purpose for which they are used. Third, whether the value relevance of subsidies depends on the channel through which they are granted. We motivate these research questions through interviews of accountants, managers, academics, government officials and financial analysts. Through large sample analyses, we confirm that subsidies are positively related to firm value, but less so for distressed firms and subsidies granted through non-tax channels. Our study contributes to improved understanding of Chinese-style capitalism.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/bb11e5e5a5bd2170b3026392ff7d527fdb03524a

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Citations in the corpus

China's 'Mercantilist' Government Subsidies, the Cost of Debt and Firm Performance (2018, methodology): “5 basis, and such subsidies are prone to the influence of political connections or government officials’ discretion (Lee et al., 2014).”
R&D Subsidies as Dual Signals in Technological Collaborations (2019, background): “While the award of an automatic subsidy is unlikely to be publicized per se (see Section 3.1), the related liquidity becomes observable, as it directly influences the value of accounting items in the firm’s financial statements (balance sheet, income, and cash flow statements) (Lee et al., 2014).”