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Product Competition and Firm Overcapacity: Evidence from China

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  • Cheng Chen
  • Jian Xu

Abstract

We exploit the competition policy in China to test whether product competition affects firm’s overcapacity. By introducing the shock of enacting of the Chinese Anti-Monopoly Law, our difference-in-differences estimation shows that the overcapacity of firms with larger market power has a significant decrease. The possible explanations are that the product competitions significantly increase after the monopoly activities and local protectionism are prohibited, which lead to the reduction of zombie firms, and the decline of firms’ bank loans and over-investment inefficiency. The effects are more pronounced to stated-owned firms, political connected firms, firms in cities with lower regional marketization and firms under industries with less competition. Overall, this study provides timely policy implications for central regulators concerned with the outcomes of the enforcement for the anti-monopoly policy and the solutions for the overcapacity problems.

Suggested Citation

  • 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.
    • Handle: RePEc:mes:emfitr:v:59:y:2023:i:7:p:2038-2055
    DOI: 10.1080/1540496X.2023.2172320
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    Cited by:

    1. Lin, Boqiang & Xie, Yongjing, 2023. "The impact of government subsidies on capacity utilization in the Chinese renewable energy industry: Does technological innovation matter?," Applied Energy, Elsevier, vol. 352(C).
    2. Wang, Hai & Chen, Hui & Ye, Shuai & Yin, Junya, 2024. "The impact of green finance on companies’ overcapacity: Evidence from green financial reform and innovation policy in China," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 1320-1336.

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