Cost of government and firm value |
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| Institution: | 1. Department of Finance and Insurance, Lingnan University, Tuen Mun, New Territories, Hong Kong;2. School of Accounting and Finance, Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong;3. Southwestern University of Finance and Economics, Chengdu, Sichuan, China;1. School of Business, Renmin University of China, 59 Zhongguancun Street, Haidian District, Beijing 100872, China;2. Shanghai Advanced Institute of Finance, Shanghai Jiaotong University, 211 West Huaihai Road, Datong Plaza, Shanghai 200030, China;1. International Business School, Sun Yat-sen University, Zhuhai 519082, China;2. Business School and Center for Accounting, Finance and Institutions, Sun Yat-sen University, Guangzhou 510275, China;3. College of Business Administration, University of Rhode Island, Kingston, RI, 02881, USA;1. School of Accountancy, Central University of Finance and Economics, 39 South College Road, Haidian District, Beijing, 100081, China;2. Gabelli School of Business, Fordham University, 113 West 60th Street, New York, NY, 10023, United States |
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| Abstract: | Do high expenditures incurred in running the government benefit or hurt firms? Using Chinese data between 1999 and 2006, we find that higher administrative expenditures in provincial governments are associated with lower firm value, lower stock and financial performance, and lower labor productivity. Local governments that spend more on public administration tend to collect more fees from companies and spend less on social welfare and infrastructures. Our evidence is consistent with the “grabbing hand” hypothesis and has important policy implications. |
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