Government subsidies and corporate investment efficiency: Evidence from China

By Jinshuai Hu, Haiyan Jiang, Mark J. Holmes. 2019

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This study examines how state subsidies to firms affect corporate investment efficiency. Using archival data from a sample of Chinese listed firms over the 2007–2015 period, we find that government subsidies have a negative effect on firms' investment efficiency, and this negative effect is more pronounced for firms that are less financially constrained. Further analyses suggest that government subsidies are positively associated with firms' over-investment, although they alleviate under-investment. Our findings are robust to a series of tests to alleviate concerns about potential endogeneity and self-selection bias.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/ea5a39765289be946e7f6a83166dfeeddcaffd57