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Staged subsidies and corporate investments: Evidence from Chinese listed firms

Kebin Deng, Zhong Ding, Xiaojie Liao and Yushu Zhu

Pacific-Basin Finance Journal, 2021, vol. 68, issue C

Abstract: We examine the impact of subsidies on firm-level investments using a panel of Chinese listed firms from 2008 to 2019. The Chinese government adopts a two-staged ‘touching stones to cross the river’ strategy in allocating funds and supervision efforts to listed firms. Subsidies granted in the early stage (‘one-off subsidies’) boost long-term investments, with 0.588 of every RMB 1 of subsidy being used for corporate investment. In contrast, in the later stage (‘repeated subsidies’), only 0.122 of every RMB 1 of subsidy is used for this purpose. We attribute this decrease to the ability of government supervision to effectively restrain overinvestment in capital expenditures.

Keywords: Government subsidies; Corporate investment; Promoting effects; Supervision effects; Repeated subsidies (search for similar items in EconPapers)
JEL-codes: H25 H32 H76 O38 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.pacfin.2021.101620

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Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

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