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Staged subsidies and corporate investments: Evidence from Chinese listed firms

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  • Deng, Kebin
  • Ding, Zhong
  • Liao, Xiaojie
  • Zhu, Yushu

Abstract

We examine the impact of subsidies on firm-level investments using a panel of Chinese listed firms from 2008 to 2019. The Chinese government adopts a two-staged ‘touching stones to cross the river’ strategy in allocating funds and supervision efforts to listed firms. Subsidies granted in the early stage (‘one-off subsidies’) boost long-term investments, with 0.588 of every RMB 1 of subsidy being used for corporate investment. In contrast, in the later stage (‘repeated subsidies’), only 0.122 of every RMB 1 of subsidy is used for this purpose. We attribute this decrease to the ability of government supervision to effectively restrain overinvestment in capital expenditures.

Suggested Citation

  • Deng, Kebin & Ding, Zhong & Liao, Xiaojie & Zhu, Yushu, 2021. "Staged subsidies and corporate investments: Evidence from Chinese listed firms," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:pacfin:v:68:y:2021:i:c:s0927538x2100127x
    DOI: 10.1016/j.pacfin.2021.101620
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    More about this item

    Keywords

    Government subsidies; Corporate investment; Promoting effects; Supervision effects; Repeated subsidies;
    All these keywords.

    JEL classification:

    • H76 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other Expenditure Categories
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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