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Does Government Subsidy Affect Firm Survival? Evidence from Chinese Manufacturing Firms

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  • Dongyang Zhang
  • Gang Xu

Abstract

This article applies a matching approach to deal with the selection bias and use the complementary log-log model to analyze the impacts of subsidy on Chinese manufacturing firms’ survival from 1998 to 2007. Our empirical results show that government subsidies significantly decrease the likelihood of firm exit. However, the effect decreases as the level of subsidies increases for private and foreign firms, but displays a nonlinear relationship across subsidy levels for SOEs. We also show the effects vary across the levels of institutional quality measured by the prevalence of rent seeking and government intervention. Further results suggest that the potential channels include increased investment in intangible and fixed assets as well as enhanced profitability.

Suggested Citation

  • Dongyang Zhang & Gang Xu, 2019. "Does Government Subsidy Affect Firm Survival? Evidence from Chinese Manufacturing Firms," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(11), pages 2628-2651, September.
    • Handle: RePEc:mes:emfitr:v:55:y:2019:i:11:p:2628-2651
    DOI: 10.1080/1540496X.2018.1530655
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    Cited by:

    1. Zhi Li & Saijiao Zhou & Zuo Zhang, 2023. "The Location Choice and Survival of Polluting Firms under Environmental Regulation in Urban Agglomerations of China," Sustainability, MDPI, vol. 15(18), pages 1-20, September.
    2. Zhang, Dongyang & Guo, Rui & He, Xiaodan, 2022. "How does the exclusive license stimulate firm’s subsequent innovation? The role of innovation financial input," Research in International Business and Finance, Elsevier, vol. 60(C).
    3. Wang, Jun & Li, Bo, 2020. "Does employer learning with statistical discrimination exist in China? Evidence from Chinese Micro Survey Data," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 319-333.
    4. Manzhi Liu & Liyuan Liu & Shichun Xu & Mingwei Du & Xianxian Liu & Yanqin Zhang, 2019. "The Influences of Government Subsidies on Performance of New Energy Firms: A Firm Heterogeneity Perspective," Sustainability, MDPI, vol. 11(17), pages 1-20, August.
    5. Cheng, Ruiqi & Yuan, Peng & Jiang, Gongxiong, 2023. "Growth, agglomeration externalities, and survival: Evidence from Chinese manufacturing start-ups," Journal of Business Research, Elsevier, vol. 154(C).
    6. Kyung Hwan Yun & Jiatao Li & Chenguang Hu, 2024. "State dominance over the market: Reexamining the survival of China’s state-owned enterprises," Asia Pacific Journal of Management, Springer, vol. 41(1), pages 437-474, March.

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