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Earnings‐based Delisting Regulations and Government Subsidies

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  • Zhaohua Li

Abstract

This paper examines who receives government subsidies when a firm faces delisting risk and how subsidies affect such a firm's performance in China. It focuses on the accounting‐based delisting rule issued in 1998 that relies heavily on the profitability of firms. Using the probit model, this study finds that subsidies are less likely to be granted to a firm that has a higher risk of being delisted than a healthy firm, but are more likely to be granted to such a firm if it is state‐owned. It is also found that having a political connection increases a firm's chance of receiving subsidies, but such an effect disappears when a firm faces a delisting risk. In assessing the impact of a subsidy on firm performance, this study shows that a subsidy increases a firm's valuation and profitability for firms at delisting risk.

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  • Zhaohua Li, 2019. "Earnings‐based Delisting Regulations and Government Subsidies," Australian Accounting Review, CPA Australia, vol. 29(1), pages 281-298, March.
    • Handle: RePEc:bla:ausact:v:29:y:2019:i:1:p:281-298
    DOI: 10.1111/auar.12283
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    Cited by:

    1. Zhang, Wenwen & Chiu, Yi-Bin & Hsiao, Cody Yu-Ling, 2022. "Effects of country risks and government subsidies on renewable energy firms’ performance: Evidence from China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 158(C).
    2. Zhang, Wenwen & Chiu, Yi-Bin, 2023. "Country risks, government subsidies, and Chinese renewable energy firm performance: New evidence from a quantile regression," Energy Economics, Elsevier, vol. 119(C).

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