Subsidized overexpansion of Chinese firms
This paper examines the economic consequences of public subsidies to listed firms in China. It reveals that public subsidies can significantly increase the chance of firm overinvestment. However, they do not necessarily resolve the underinvestment problem. These results appear robust when we test va...
| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
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Elsevier
2019
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| Subjects: | |
| Online Access: | https://eprints.nottingham.ac.uk/56253/ |
| _version_ | 1848799302136102912 |
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| author | Han, Miao Zhang, Dayong Bi, Xiaogang Huang, Wei |
| author_facet | Han, Miao Zhang, Dayong Bi, Xiaogang Huang, Wei |
| author_sort | Han, Miao |
| building | Nottingham Research Data Repository |
| collection | Online Access |
| description | This paper examines the economic consequences of public subsidies to listed firms in China. It reveals that public subsidies can significantly increase the chance of firm overinvestment. However, they do not necessarily resolve the underinvestment problem. These results appear robust when we test various types of subsidies separately, as well as when we analyze the influence of subsidies on the investment-Q sensitivity. Further investigation shows that dividend payout has an important moderating role in this relationship between subsidies and investment. Firms with subsidies, especially those that pay higher cash dividends, have lower future stock returns and valuations than comparable non-subsidized firms. Overall, the main findings of this paper signal a clear government failure to correct market failure in the Chinese capital market. © 2019 |
| first_indexed | 2025-11-14T20:33:30Z |
| format | Article |
| id | nottingham-56253 |
| institution | University of Nottingham Malaysia Campus |
| institution_category | Local University |
| language | English |
| last_indexed | 2025-11-14T20:33:30Z |
| publishDate | 2019 |
| publisher | Elsevier |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | nottingham-562532021-02-14T04:30:12Z https://eprints.nottingham.ac.uk/56253/ Subsidized overexpansion of Chinese firms Han, Miao Zhang, Dayong Bi, Xiaogang Huang, Wei This paper examines the economic consequences of public subsidies to listed firms in China. It reveals that public subsidies can significantly increase the chance of firm overinvestment. However, they do not necessarily resolve the underinvestment problem. These results appear robust when we test various types of subsidies separately, as well as when we analyze the influence of subsidies on the investment-Q sensitivity. Further investigation shows that dividend payout has an important moderating role in this relationship between subsidies and investment. Firms with subsidies, especially those that pay higher cash dividends, have lower future stock returns and valuations than comparable non-subsidized firms. Overall, the main findings of this paper signal a clear government failure to correct market failure in the Chinese capital market. © 2019 Elsevier 2019-03-01 Article PeerReviewed application/pdf en cc_by_nc_nd https://eprints.nottingham.ac.uk/56253/1/Han%2C%20Zhang%2C%20Bi%2C%20Huang%202019IRFA.pdf Han, Miao, Zhang, Dayong, Bi, Xiaogang and Huang, Wei (2019) Subsidized overexpansion of Chinese firms. International Review of Financial Analysis, 62 . pp. 69-79. ISSN 1057-5219 Dividends; Investment efficiency; Market failure; Public subsidies http://dx.doi.org/10.1016/j.irfa.2019.02.003 doi:10.1016/j.irfa.2019.02.003 doi:10.1016/j.irfa.2019.02.003 |
| spellingShingle | Dividends; Investment efficiency; Market failure; Public subsidies Han, Miao Zhang, Dayong Bi, Xiaogang Huang, Wei Subsidized overexpansion of Chinese firms |
| title | Subsidized overexpansion of Chinese firms |
| title_full | Subsidized overexpansion of Chinese firms |
| title_fullStr | Subsidized overexpansion of Chinese firms |
| title_full_unstemmed | Subsidized overexpansion of Chinese firms |
| title_short | Subsidized overexpansion of Chinese firms |
| title_sort | subsidized overexpansion of chinese firms |
| topic | Dividends; Investment efficiency; Market failure; Public subsidies |
| url | https://eprints.nottingham.ac.uk/56253/ https://eprints.nottingham.ac.uk/56253/ https://eprints.nottingham.ac.uk/56253/ |