IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v70y2024ics1544612324013370.html
   My bibliography  Save this article

Fair Competition Review System and cross-regional capital flow: Evidence from China

Author

Listed:
  • Li, Shuqi
  • Xu, Nuo

Abstract

Breaking local protectionism and market segmentation to promote the free flow of production factors between regions is crucial for building a unified national market in China. Introduced in 2016, the Fair Competition Review System (FCRS) restricts local governments’ abuse of administrative power to limit competition. The system corrects market failures and weakens regional barriers, establishing market competition by evaluating policies and regulations for anti-competitive practices. This study investigated the impact of the FCRS on cross-regional capital flow through subsidiaries in different regions. Using data from Chinese-listed companies between 2011 and 2022, this empirical study found that capital flow significantly increased after the system's implementation. Cross-regional flow was stronger in areas with higher reduced administrative barriers, lower tax burdens, and lower capacity utilization rates. This suggests that the primary mechanisms driving capital flow were expansion and cost-efficiency improvements. Heterogeneity tests indicate that the system exhibited a stronger impact on promoting cross-regional capital flow for private enterprises and those with low investment efficiency and weaker profitability. These findings suggest that the FCRS effectively regulates administrative monopolies, reduces regional barriers, and facilitates freer capital flow between regions, contributing to a unified national market in China.

Suggested Citation

  • Li, Shuqi & Xu, Nuo, 2024. "Fair Competition Review System and cross-regional capital flow: Evidence from China," Finance Research Letters, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:finlet:v:70:y:2024:i:c:s1544612324013370
    DOI: 10.1016/j.frl.2024.106308
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612324013370
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2024.106308?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Zhang, Zili & Wang, Zeyu & Si, Yanwu & Li, Tianyang, 2023. "Administrative monopoly regulation and corporate tax avoidance - evidence from China," Finance Research Letters, Elsevier, vol. 58(PB).
    2. Zhang Shaohua & Farzan Yahya & Huy Pham & Muhammad Waqas, 2021. "Do Transparency and Anti-Monopoly Policies Matter for Financial Development? Evidence from a Panel ARDL-PMG Approach," Journal of Applied Economics, Taylor & Francis Journals, vol. 24(1), pages 1-16, January.
    3. Xu, Nuo & Gao, Yubin & Du, Lizhen & You, Liang, 2023. "Does administrative monopoly regulation affect corporate financialization? From the perspective of vertical industrial chain competition in China," Finance Research Letters, Elsevier, vol. 53(C).
    4. Ernest Liu & Yi Lu & Wenwei Peng & Shaoda Wang, 2022. "Judicial Independence, Local Protectionism, and Economic Integration: Evidence from China," NBER Working Papers 30432, National Bureau of Economic Research, Inc.
    5. Chen, Jiachun & Chen, Xia & Hou, Qingsong & Hu, May, 2021. "Haste doesn't bring success: Top-down amplification of economic growth targets and enterprise overcapacity," Journal of Corporate Finance, Elsevier, vol. 70(C).
    6. Ge, Pengfei & Zhu, Rui & Chen, Yize & Huang, Xiulu, 2024. "Selective industrial policy and overcapacity: Evidence from a quasi-natural experiment in China," Economic Systems, Elsevier, vol. 48(3).
    7. Jude, Cristina & Silaghi, Monica Ioana Pop, 2016. "Employment effects of foreign direct investment: New evidence from Central and Eastern European countries," International Economics, Elsevier, vol. 145(C), pages 32-49.
    8. di Giovanni, Julian, 2005. "What drives capital flows? The case of cross-border M&A activity and financial deepening," Journal of International Economics, Elsevier, vol. 65(1), pages 127-149, January.
    9. Broadman, Harry G., 2000. "Reducing structural dominance and entry barriers in Russian industry," Policy Research Working Paper Series 2330, The World Bank.
    10. Li, Jie & Qiu, Larry D. & Sun, Qunyan, 2003. "Interregional protection: Implications of fiscal decentralization and trade liberalization," China Economic Review, Elsevier, vol. 14(3), pages 227-245.
    11. Wenyao Guo & Xianzhong Mu, 2022. "Identification of Cities in Underdeveloped Resource-Rich Areas and Its Sustainable Development: Evidence from China," Sustainability, MDPI, vol. 14(20), pages 1-16, October.
    12. Fabio Bertoni & Alexander Peter Groh, 2022. "The Benefit of Cross-Border Investments in the Chinese Emerging Venture Capital and Private Equity Market," Finance, Presses universitaires de Grenoble, vol. 43(3), pages 3-36.
    13. Lining He & Faye Duchin, 2009. "Regional Development In China: Interregional Transportation Infrastructure And Regional Comparative Advantage," Economic Systems Research, Taylor & Francis Journals, vol. 21(1), pages 3-22.
    14. Max Boisot & Marshall W. Meyer, 2008. "Which Way through the Open Door? Reflections on the Internationalization of Chinese Firms," Management and Organization Review, The International Association for Chinese Management Research, vol. 4(3), pages 349-365, November.
    15. Boisot, Max & Meyer, Marshall W., 2008. "Which Way through the Open Door? Reflections on the Internationalization of Chinese Firms," Management and Organization Review, Cambridge University Press, vol. 4(3), pages 349-365, November.
    16. Li, Rongrong & Wang, Qiang & Li, Lejia & Hu, Sailan, 2023. "Do natural resource rent and corruption governance reshape the environmental Kuznets curve for ecological footprint? Evidence from 158 countries," Resources Policy, Elsevier, vol. 85(PB).
    17. Xiao, Zumian & Wang, Shuhan & Zhang, Yepeng & Si, Deng-Kui, 2023. "Power of competition: Unraveling the impact of China's fair competition review system implementation on firm innovation," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 1561-1581.
    18. Kong, Xiangyi & Xu, Jian & Zhang, Yinge, 2022. "Industry competition and firm productivity: Evidence from the antitrust policy in China," Finance Research Letters, Elsevier, vol. 47(PB).
    19. Tianmiao Guo & Jian Li & Fengyue Gao & Shuhua Zhang, 2023. "Examining the Impact of Market Segmentation on Carbon Emission Intensity in China," Sustainability, MDPI, vol. 15(24), pages 1-19, December.
    20. Cao, Chunfang & Li, Xiaoyang & Xia, Changyuan, 2021. "The complicit role of local government authorities in corporate bribery: Evidence from a tax collection reform in China," China Economic Review, Elsevier, vol. 65(C).
    21. Yang, Xingquan & Zhang, Kexin & Liao, Guanmin & Gao, Pengfei, 2024. "Administrative monopoly and state-owned enterprise innovation: Evidence from the fair competition review system in China," International Review of Financial Analysis, Elsevier, vol. 95(PB).
    22. Bathia, Deven & Bouras, Christos & Demirer, Riza & Gupta, Rangan, 2020. "Cross-border capital flows and return dynamics in emerging stock markets: Relative roles of equity and debt flows," Journal of International Money and Finance, Elsevier, vol. 109(C).
    23. Jieming Zhu, 1999. "Local Growth Coalition: The Context and Implications of China’s Gradualist Urban Land Reforms," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 23(3), pages 534-548, September.
    24. Kun Xie & Wei Huang & Elmetwally Elabbasy, 2023. "The Impact of Digital Transformation on Corporate Tax Avoidance: Evidence from China," Discrete Dynamics in Nature and Society, Hindawi, vol. 2023, pages 1-13, April.
    25. Arik Sadeh & Claudia Florina Radu & Cristina Feniser & Andrei Borşa, 2020. "Governmental Intervention and Its Impact on Growth, Economic Development, and Technology in OECD Countries," Sustainability, MDPI, vol. 13(1), pages 1-30, December.
    26. Saša Jakšić & Nataša Erjavec & Boris Cota, 2021. "Impact of regulatory trade barriers and controls of the movement of capital and people on international trade of selected Central, Eastern and Southeastern European economies," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 29(3), pages 891-907, September.
    27. Yongzheng Liu & Guangliang Ye, 2019. "Competition Policy and Trade Barriers: Empirical Evidence from China," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 54(2), pages 193-219, March.
    28. Harry Broadman, 2000. "Reducing Structural Dominance and Entry Barriers in Russian Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 17(2), pages 155-175, September.
    29. Changqi Wu & Zhicheng Liu, 2012. "A Tiger Without Teeth? Regulation of Administrative Monopoly Under China’s Anti-Monopoly Law," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 41(1), pages 133-155, August.
    30. Cheng Chen & Jian Xu, 2023. "Product Competition and Firm Overcapacity: Evidence from China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 59(7), pages 2038-2055, May.
    31. Wei Shao & Yangyang Sun & Xiao Bai & Muhammad Abubakr Naeem & Farhad Taghizadeh‐Hesary, 2023. "Zombie enterprises, crowding out effect, and total factor productivity: Empirical evidence from Chinese manufacturing listed companies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 4512-4531, October.
    32. Dan Wei, 2011. "China's Anti-Monopoly Law and its Merger Enforcement: Convergence and Flexibility," Journal of International Economic Law, Oxford University Press, vol. 14(4), pages 807-844, December.
    33. Zhao, Yujie & Zhang, Zixuan & Zhang, Boyuan & Sun, Haixia, 2024. "Does administrative monopoly regulation affect cross-regional resource allocation?," Economics Letters, Elsevier, vol. 243(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sun, Sunny Li & Peng, Mike W. & Lee, Ruby P. & Tan, Weiqiang, 2015. "Institutional open access at home and outward internationalization," Journal of World Business, Elsevier, vol. 50(1), pages 234-246.
    2. Clemens Fuest & Felix Hugger & Samina Sultan & Jing Xing, 2022. "What drives Chinese overseas M&A investment? Evidence from micro data," Review of International Economics, Wiley Blackwell, vol. 30(1), pages 306-344, February.
    3. Zhao, Yujie & Zhang, Zixuan & Zhang, Boyuan & Sun, Haixia, 2024. "Does administrative monopoly regulation affect cross-regional resource allocation?," Economics Letters, Elsevier, vol. 243(C).
    4. Jiang, Weijie & Yu, Hui & Chen, Qi, 2024. "Surname distance and interregional investments," Economic Modelling, Elsevier, vol. 140(C).
    5. Fathallah, Ramzi & Carney, Michael, 2024. "The business family as an institutional arbitrageur: Internationalization across institutional contexts," Journal of World Business, Elsevier, vol. 59(2).
    6. Qiliang Mao & Xianzhuang Mao, 2021. "Cultural barriers, institutional distance, and spatial spillovers: Evidence from regional industrial evolution in China," Growth and Change, Wiley Blackwell, vol. 52(3), pages 1440-1481, September.
    7. Gloria Ge & Hugh Wang, 2013. "The impact of network relationships on internationalization process: An empirical study of Chinese private enterprises," Asia Pacific Journal of Management, Springer, vol. 30(4), pages 1169-1189, December.
    8. Shih-Chang Hung & Yung-Ching Tseng, 2017. "Extending the LLL framework through an institution-based view: Acer as a dragon multinational," Asia Pacific Journal of Management, Springer, vol. 34(4), pages 799-821, December.
    9. Liu, Yulong & Yu, Yang, 2018. "Institutions, firm resources and the foreign establishment mode choices of Chinese firms: The moderating role of home regional institutional development," Journal of Business Research, Elsevier, vol. 93(C), pages 111-121.
    10. Khanindra Ch. Das, 2013. "Home Country Determinants of Outward FDI from Developing Countries," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 7(1), pages 93-116, February.
    11. Wang, Chengqi & Hong, Junjie & Kafouros, Mario & Boateng, Agyenim, 2012. "What drives outward FDI of Chinese firms? Testing the explanatory power of three theoretical frameworks," International Business Review, Elsevier, vol. 21(3), pages 425-438.
    12. Svetlana Ledyaeva & Päivi Karhunen & Riitta Kosonen & John Whalley, 2015. "Offshore Foreign Direct Investment, Capital Round-Tripping, and Corruption: Empirical Analysis of Russian Regions," Economic Geography, Clark University, vol. 91(3), pages 305-341, July.
    13. Tian, Qian & Zhu, Yan & Zhang, Zili, 2024. "The impact of local incentive-based legislation on the financing constraints of private firms–Evidence from China," Finance Research Letters, Elsevier, vol. 68(C).
    14. Lixin Zhou & Yan Han & Chaoli Gou, 2019. "Influence of Family Involvement on Family Firm Internationalization: The Moderating Effects of Industrial and Institutional Environments," Sustainability, MDPI, vol. 11(20), pages 1-17, October.
    15. Bessonova, Evguenia & Gonchar, Ksenia, 2019. "How the innovation-competition link is shaped by technology distance in a high-barrier catch-up economy," Technovation, Elsevier, vol. 86, pages 15-32.
    16. Päivi Karhunen & Svetlana Ledyaeva & Keith D. Brouthers, 2022. "Capital Round-Tripping: Determinants of Emerging Market Firm Investments into Offshore Financial Centers and Their Ethical Implications," Journal of Business Ethics, Springer, vol. 181(1), pages 117-137, November.
    17. Barnard, Helena & Luiz, John M., 2018. "Escape FDI and the dynamics of a cumulative process of institutional misalignment and contestation: Stress, strain and failure," Journal of World Business, Elsevier, vol. 53(5), pages 605-619.
    18. Rekha Rao-Nicholson & Catherine Cai, 2020. "The effects of ownership identity on corporate diversification strategy of Chinese companies in foreign markets," Asia Pacific Journal of Management, Springer, vol. 37(1), pages 91-126, March.
    19. Li, Wen Helena & Guo, Bin & De Sisto, Marco, 2021. "Untangling the commonalities and differences between domestic cross-regional experience and international experience in shaping speed of internationalization," Journal of International Management, Elsevier, vol. 27(2).
    20. Zhang, Yue & Wang, Caiping & Chen, Yufei, 2024. "Foreign ownership, institutional distance and mutual fund performance: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 87(C).

    More about this item

    Keywords

    Fair Competition Review System; Administrative monopoly; Cross-regional capital flow; Remote investment;
    All these keywords.

    JEL classification:

    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:70:y:2024:i:c:s1544612324013370. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.