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Provincial economic growth and firm excess investment: Evidence from China

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  • Liu, Jianhua
  • Liu, Jingjun
  • Tang, Zhenyang
  • Xu, Yue

Abstract

Local governments in China frequently report provincial economic growth rates that exceed their targets. Prior studies suggest that this phenomenon is attributable to governmental influence over local firms, particularly through coercing these firms into escalating investments to maximize economic expansion. Using a sample of 18,349 Chinese listed firms from 2001 to 2017, we find that firms located in regions that exceed economic growth targets tend to invest more heavily. This effect is more pronounced in years when local government officials face stronger promotion pressure; furthermore, excess economic growth is associated with diminished investment efficiency within firms and increased government subsidies. These findings suggest that excess economic growth proxies for local government opportunism and plays an important role in local firms’ investment decisions.

Suggested Citation

  • Liu, Jianhua & Liu, Jingjun & Tang, Zhenyang & Xu, Yue, 2024. "Provincial economic growth and firm excess investment: Evidence from China," Economic Modelling, Elsevier, vol. 137(C).
    • Handle: RePEc:eee:ecmode:v:137:y:2024:i:c:s0264999324001202
    DOI: 10.1016/j.econmod.2024.106764
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