Government subsidies and corporate investment efficiency: Evidence from China |
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| Affiliation: | 1. Applied Financial Economics Department, College of Economics & Management, Beijing University of Technology, Beijing 100124, China;2. Middlesex University Business School, Hendon Campus, The Burroughs, London NW4 4BT, UK;3. China International United Petroleum & Chemicals Co., Ltd, Beijing 100728, China;4. Energy Studies Institute, National University of Singapore, Singapore 119620, Singapore;5. Finance and Economics Development Research Center, College of Economics & Management, Beijing University of Technology, Beijing 100124, China;1. Singapore Institute of Technology, Singapore;2. Singapore Management University, Singapore;3. University of Manchester, UKn;1. Department of Accounting and Finance, School of Management, Zhejiang University, China;2. Business School, University of Queensland, Australia |
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| Abstract: | This study examines how state subsidies to firms affect corporate investment efficiency. Using archival data from a sample of Chinese listed firms over the 2007–2015 period, we find that government subsidies have a negative effect on firms' investment efficiency, and this negative effect is more pronounced for firms that are less financially constrained. Further analyses suggest that government subsidies are positively associated with firms' over-investment, although they alleviate under-investment. Our findings are robust to a series of tests to alleviate concerns about potential endogeneity and self-selection bias. |
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