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The Impact of Government Intervention on Corporate Investment Allocations and Efficiency: Evidence from China
Author(s) -
Hao Ying,
Lu Jing
Publication year - 2017
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12188
Subject(s) - economic interventionism , crowding out , investment (military) , business , intervention (counseling) , equity (law) , government (linguistics) , china , economics , monetary economics , market economy , finance , psychology , linguistics , philosophy , psychiatry , politics , political science , law
We examine whether government intervention plays an important role in determining corporate investment allocations and efficiency in China. We find the government tends to intervene to promote corporate investment in fixed assets, equity in other state‐owned enterprises (SOEs), and natural resources including oil, natural gas, and mines, but reduces research and development (R&D) investment. However, the effects of government intervention on these investment allocations are primarily found in local SOEs rather than in central SOEs or in private enterprise. Government intervention also induces a crowding‐out effect in natural resource investments of private firms, suggesting that government intervention distorts investment allocations and reduces investment efficiency.