State control, access to capital and firm performance | Zendy

Oliver Zhen Li | Zendy; Xijia Su | Zendy; Zhifeng Yang | Zendy

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State control, access to capital and firm performance

Author(s) -

Oliver Zhen Li,

Xijia Su,

Zhifeng Yang

Publication year - 2012

Publication title -

china journal of accounting research

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.615

H-Index - 15

eISSN - 2214-1421

pISSN - 1755-3091

DOI - 10.1016/j.cjar.2012.05.001

Subject(s) - business , state ownership , stock (firearms) , issuer , equity (law) , finance , china , capital market , monetary economics , control (management) , capital allocation line , investment (military) , initial public offering , emerging markets , financial system , economics , microeconomics , profit (economics) , mechanical engineering , management , politics , political science , law , engineering

We study the effect of state control on capital allocation and investment in China, where the government screens prospective stock issuers. We find that state firms are more likely to obtain government approval to conduct seasoned equity offerings than non-state firms. Further, non-state firms exhibit greater sensitivities of subsequent investment and stock performance to regulatory decisions on stock issuances than state firms. Our work suggests that state control of capital access distorts resource allocation and impedes the growth of non-state firms. We also provide robust evidence that financial constraints cause underinvestment

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