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Purposes of government subsidy and firm performance

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  • Danlu Bu
  • Chenyu Zhang
  • Xiaoyan Wang

Abstract

This study examines the effect of a government subsidy’s purpose on firm performance. Using a sample of Chinese listed firms from 2007 to 2012, we find that a government subsidy affects firm performance. Specifically, a government subsidy is negatively associated with firm performance, and such a negative effect is primarily driven by a non-specified type of subsidy. Further, such an effect is more pronounced for state-owned enterprises (SOEs) compared with non-SOEs. The government quality has a positive effect on the likelihood of a specified subsidy and the performance impact of a non-specified subsidy. Further analyses suggest that a non-specified subsidy reduces investment efficiency and results in rent-seeking activities. This study sheds light on the effect of government subsidies from a new perspective, and has important policy implications for regulators to improve the effectiveness of government subsidies.

Suggested Citation

  • Danlu Bu & Chenyu Zhang & Xiaoyan Wang, 2017. "Purposes of government subsidy and firm performance," China Journal of Accounting Studies, Taylor & Francis Journals, vol. 5(1), pages 100-122, January.
    • Handle: RePEc:taf:rcjaxx:v:5:y:2017:i:1:p:100-122
    DOI: 10.1080/21697213.2017.1292730
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    Cited by:

    1. Dongyang Zhang, 2023. "Fiscal policy benefits and green recovery of firms: an experimental exploration of Chinese listed firms in post-Covid-19," Economic Change and Restructuring, Springer, vol. 56(5), pages 2921-2942, October.

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