Industrial policy and asset prices: Evidence from the Made in China 2025 policy

Liu, Xia (Summer), William L. Megginson and Junjie Xia

Journal of Banking & Finance, 2022, vol. 142, issue C

Abstract: We study the link between industrial policy and asset prices by using the Made in China 2025 industrial policy, announced in May 2015, as an external shock. We track Chinese firms and U.S. firms in ten high-tech industries targeted by the policy. In the short run, stock prices, measured by cumulative abnormal returns (CARs), increase significantly for both Chinese and U.S. firms, by 9.9% and 1.4%, respectively. However, in the long run, Chinese firms’ CARs drop heavily, while U.S. firms’ CARs continually increase. We further find that after the policy announcement, Chinese firms’ profitability declines dramatically by an average of 52.9% and firms’ leverage increase significantly, but they do not receive additional government subsidies. We conclude that the policy only boosts market reaction in the short run but does not promote targeted industries longer term.

Keywords: China; Industrial policy; Event study; Made in China 2025; Economic policy uncertainty (search for similar items in EconPapers)
JEL-codes: G14 G15 G18 K11 L52 L60 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:142:y:2022:i:c:s0378426622001509

DOI: 10.1016/j.jbankfin.2022.106554

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