Government-decentralized power: Measurement and effects

Shaoling Chen, Qing Gao, Qing Peng and Haisheng Yang

Emerging Markets Review, 2021, vol. 48, issue C

Abstract: Using tools from computational linguistics, we construct a new measure of government-decentralized power faced by Chinese firms: the diversity between central and local government work reports. Using our measure, we document that government-decentralized power has an inverse U-shaped impact on investment efficiency (a U-shaped impact on investment inefficiency). Currently, government-decentralized power is below its optimal level. The underlying mechanisms are yardstick competition among local governments and the election effect of political officials, which dominate the preference-matching effect in support of decentralization. Furthermore, local governments present broadly positive sentiment in their reports. This strengthens the negative impact of inadequate government-decentralized power.

Keywords: Government-decentralized power; Investment efficiency; Textual analysis; Yardstick competition; Election effect (search for similar items in EconPapers)
JEL-codes: H11 H77 P43 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:48:y:2021:i:c:s1566014120302971

DOI: 10.1016/j.ememar.2020.100769

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