The dilemma of government intervention in a firm's financing: Evidence from China

Tong Fu

International Review of Financial Analysis, 2020, vol. 71, issue C

Abstract: This paper discovers the dilemma of government intervention in a firm's financing. With evidence from China, we document that government intervention causally promotes a firm's financial access but impedes the positive change of financial access (i.e., micro-financial development). Considering that our instrumental variable (IV) may be imperfectly exogenous, we apply the plausible exogeneity theory to verify that our IV estimates are robust to the relaxation of exclusion restriction. We further use mediation estimates to show that the corruption is the by-product of government intervention in financing and that the corruption due to government intervention constrains micro-financial development. Therefore, we discover that the corruption is the crux of the government-intervention dilemma.

Keywords: Government intervention; Financial access; Micro-financial development; Corruption; Plausible exogeneity theory (search for similar items in EconPapers)
JEL-codes: G21 G28 G38 O17 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:71:y:2020:i:c:s1057521920301691

DOI: 10.1016/j.irfa.2020.101525

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