Can government intervention be both a curse and a blessing? Evidence from China's finance sector |
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| Institution: | 1. International Institute for Financial Studies, Jiangxi University of Finance and Economics, Nanchang 330013, China;2. Institute of Industrial Economics and the Center for Regulation and Competition, Jiangxi University of Finance and Economics, Nanchang 330013, China;3. Department of Economics and Finance, Southern Illinois University Edwardsville, Edwardsville 62016-1102, USA;1. School of Business, Management and Economics, University of Sussex, 316 Jubilee Building, Falmer, Brighton BN1 9SL, UK;2. Faculty of Commerce and Business Administration, Douglas College, 700 Royal Avenue, New Westminster V3L 5B2, BC, Canada;3. The Management School, Lancaster University, Lancaster LA1 4YX, UK;4. School of Business, Management and Economics, University of Sussex, 308 Jubilee Building, Falmer, Brighton BN1 9SL, UK;5. Department of Accounting, College of Economics Shenzhen University, Nanshan District, 518055 Shenzhen, PR China;1. Center for Economic Research, Shandong University, Jinan, China;2. School of Finance, Renmin University of China, Beijing, China |
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| Abstract: | Earlier work views government intervention as a “grabbing hand,” whereas more recent studies report that it acts as a “helping hand.” Can government intervention be both a curse and a blessing? This paper investigates this issue by investigating the impact of government intervention on firm financing and financial corruption in China, using the 2005 World Bank Investment Climate survey data. To do so, we first use instrumental variable estimations to confirm that government intervention promotes financial access and encourage corruption. Next, we adopt a mediator model to document that government intervention promotes firms' access to finance through informal payment. The mediation effect is significant for split samples that capture different type of political and economic climate. The policy implications of the findings are discussed. |
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