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GDP competition and corporate investment: Evidence from China
Author(s) -
Liu Qiang,
Hao Ying,
Du Yong,
Xing Yuning
Publication year - 2020
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/1468-0106.12312
Subject(s) - economics , competition (biology) , investment (military) , marketization , monetary economics , proxy (statistics) , china , gross private domestic investment , real gross domestic product , macroeconomics , return on investment , open ended investment company , politics , production (economics) , ecology , machine learning , political science , computer science , law , biology
This study examines whether and how macroeconomic performance competition is related to investment at firm level. We use GDP competition as a proxy of dynamic macroeconomic conditions. We find that the effect of GDP competition on firm investments is significantly positive. We also find that GDP competition destroys investment efficiency significantly, especially by increasing overinvestment. Further tests show that GDP competition is more likely to affect the investment decisions of firms controlled by governments and firms located in regions with low marketization. In addition, our analyses reveal that the provincial officials facing competitive pressure are more likely to be promoted if firm investments accelerate. We use alternative proxies to measure GDP competition and find similar results that support our inference. Our findings support the notion that GDP competition of governments distorts investment behaviour. The present paper also elucidates investment problems and dilemmas faced by emerging economies.