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Fiscal decentralization and corporate investment: empirical evidence from China

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  • Shenghao Gao
  • Liming Wang
  • Ningyue Liu
  • Min Zhang

Abstract

This paper examines the effect of fiscal decentralization on levels and efficiency of corporate investment. The results indicate that as the extent of local government fiscal decentralization increases, the level of new investment by firms under their jurisdiction rises. Furthermore, fiscal decentralization has an impact on corporate investment by aggravating over-investment rather than alleviating under-investment, leading to a situation whereby fiscal decentralization is negatively associated with investment efficiency at the level of the firm. Finally, the impact of fiscal decentralization on over-investment, under-investment and investment efficiency is not different between state-owned enterprises and non-state-owned enterprises, suggesting that economic leverages are the dominant government intervention measures. The findings imply that fiscal decentralization is another determinant of firm-level investment and corporate investment efficiency, which broadens the existing literature on the economic consequence of fiscal decentralization, resulting in important implications for policy-making.

Suggested Citation

  • Shenghao Gao & Liming Wang & Ningyue Liu & Min Zhang, 2019. "Fiscal decentralization and corporate investment: empirical evidence from China," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 22(1), pages 51-68, January.
    • Handle: RePEc:taf:jecprf:v:22:y:2019:i:1:p:51-68
    DOI: 10.1080/17487870.2017.1310042
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    Cited by:

    1. Mingxiong Bi & Chencheng Wang & Dian Fu & Xun Tan & Shurong Yu & Junbai Pan & Kun Lv, 2022. "Chinese-Style Fiscal Decentralization, Ecological Attention of Government, and Regional Energy Intensity," Energies, MDPI, vol. 15(22), pages 1-28, November.
    2. Junhua Chen & Na Liu, 2022. "The impact of fiscal decentralization on the efficiency in social housing provision: Evidence from China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3404-3418, December.
    3. Yuan, Mingqing, 2023. "Economic Policy Uncertainty and Corporate Investment Dynamics: Evidence from Listed Chinese Firms," MPRA Paper 119992, University Library of Munich, Germany.
    4. Ji, Qiang & Nie, Song, 2024. "How does local government fiscal pressure affect corporate ESG performance?," Finance Research Letters, Elsevier, vol. 64(C).
    5. Jin, Haizhen, 2023. "Effects of decentralization on firm performance: Evidence from Chinese county-level quasi-experiments," Economic Modelling, Elsevier, vol. 119(C).

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