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Does Industrial Policy Reduce Corporate Investment Efficiency? Evidence from China

Author

Listed:
  • Ting Wang

    (School of Economics, Zhejiang University, Hangzhou 310027, China)

  • Rujun Wang

    (Bond Financing Headquarter, Haitong Securities Company Limited, Shanghai 200001, China)

  • Hua Zhang

    (School of Economics & Academy of Financial Research, Zhejiang University, Hangzhou 310027, China)

Abstract

We investigate the impact and mechanism of industrial policy on corporate investment and investment efficiency. Using the micro-level data of A-share listed firms on China’s stock market from 2001–2020, we examine whether industrial policies have different effects on China’s state-owned enterprises (SOEs) and non-state-owned enterprises (non-SOEs). Moreover, we identify specific policy followers to further illustrate the impact of industrial policy on investment efficiency. The empirical results show that industrial policies promote investments among non-SOEs at the cost of reducing their investment efficiency, but have no effect on the investment and efficiency of SOEs. Government subsidy and inter-industry competition are the main mechanisms for the negative impact of industrial policy on investment efficiency. Moreover, target industrial policies reduce the investment efficiency of both SOE and non-SOE policy followers. Therefore, to achieve the goal of improving corporate investment efficiency and promoting sustainable economic development, policy-makers should pay more attention to the consequence of unnecessary government subsidy and excessive inter-industry competition.

Suggested Citation

  • Ting Wang & Rujun Wang & Hua Zhang, 2022. "Does Industrial Policy Reduce Corporate Investment Efficiency? Evidence from China," Sustainability, MDPI, vol. 15(1), pages 1-23, December.
    • Handle: RePEc:gam:jsusta:v:15:y:2022:i:1:p:732-:d:1021348
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    1. Shi, Wenxiang & Fang, Peijie, 2023. "Delisting regulation and corporate financialization: Evidence from China," Finance Research Letters, Elsevier, vol. 58(PD).

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