Can government intervention be both a curse and a blessing? Evidence from China's finance sector

Lingbing Feng, Tong Fu and Ali Kutan

International Review of Financial Analysis, 2019, vol. 61, issue C, 71-81

Abstract: Earlier work views government intervention as a “grabbing hand,” whereas more recent studies report that it acts as a “helping hand.” Can government intervention be both a curse and a blessing? This paper investigates this issue by investigating the impact of government intervention on firm financing and financial corruption in China, using the 2005 World Bank Investment Climate survey data. To do so, we first use instrumental variable estimations to confirm that government intervention promotes financial access and encourage corruption. Next, we adopt a mediator model to document that government intervention promotes firms' access to finance through informal payment. The mediation effect is significant for split samples that capture different type of political and economic climate. The policy implications of the findings are discussed.

Keywords: Access to finance; Corruption; Government intervention; Investment climate survey (search for similar items in EconPapers)
JEL-codes: C51 G21 O17 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:61:y:2019:i:c:p:71-81

DOI: 10.1016/j.irfa.2018.10.010

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