Cost of government and firm value

Michael Firth, Stephen Gong and Liwei Shan

Journal of Corporate Finance, 2013, vol. 21, issue C, 136-152

Abstract: Do high expenditures incurred in running the government benefit or hurt firms? Using Chinese data between 1999 and 2006, we find that higher administrative expenditures in provincial governments are associated with lower firm value, lower stock and financial performance, and lower labor productivity. Local governments that spend more on public administration tend to collect more fees from companies and spend less on social welfare and infrastructures. Our evidence is consistent with the “grabbing hand” hypothesis and has important policy implications.

Keywords: Cost of government; Firm value; Efficiency; Productivity; Grabbing hand; Political economy (search for similar items in EconPapers)
JEL-codes: G38 H20 H50 H70 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (22)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:21:y:2013:i:c:p:136-152

DOI: 10.1016/j.jcorpfin.2013.01.008

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