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The rise of market power and firms' investment: Evidence from China

Author

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  • Bowen Zheng
  • Mengjie Zhang
  • Xuefang Zhang

Abstract

Following De Loecker et al. (2020) we characterise the evolution of market power based on listed firm data in the Chinese economy from 2000 to 2019. The increase is mainly driven by a few superstar firms. In addition, we find strong evidence of an inverted U‐shape relation between market power and investment. Increasing market power encourages competing firms to invest in beating the competition but discourages firms from investing in an unequal economy because of the decline in investment payoffs. These findings indicate that the superstar firm effect harms investment, resulting in a potential decline in the economic growth rate.

Suggested Citation

  • Bowen Zheng & Mengjie Zhang & Xuefang Zhang, 2022. "The rise of market power and firms' investment: Evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(5), pages 4807-4830, December.
    • Handle: RePEc:bla:acctfi:v:62:y:2022:i:5:p:4807-4830
    DOI: 10.1111/acfi.12990
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