Does Industrial Policy Reduce Corporate Investment Efficiency? Evidence from China

Ting Wang, Rujun Wang and Hua Zhang ()
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Ting Wang: School of Economics, Zhejiang University, Hangzhou 310027, China
Rujun Wang: Bond Financing Headquarter, Haitong Securities Company Limited, Shanghai 200001, China
Hua Zhang: School of Economics & Academy of Financial Research, Zhejiang University, Hangzhou 310027, China

Sustainability, 2022, vol. 15, issue 1, 1-23

Abstract: We investigate the impact and mechanism of industrial policy on corporate investment and investment efficiency. Using the micro-level data of A-share listed firms on China’s stock market from 2001–2020, we examine whether industrial policies have different effects on China’s state-owned enterprises (SOEs) and non-state-owned enterprises (non-SOEs). Moreover, we identify specific policy followers to further illustrate the impact of industrial policy on investment efficiency. The empirical results show that industrial policies promote investments among non-SOEs at the cost of reducing their investment efficiency, but have no effect on the investment and efficiency of SOEs. Government subsidy and inter-industry competition are the main mechanisms for the negative impact of industrial policy on investment efficiency. Moreover, target industrial policies reduce the investment efficiency of both SOE and non-SOE policy followers. Therefore, to achieve the goal of improving corporate investment efficiency and promoting sustainable economic development, policy-makers should pay more attention to the consequence of unnecessary government subsidy and excessive inter-industry competition.

Keywords: industrial policy; investment efficiency; policy follower; sustainable development (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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