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Does China overinvest? Evidence from a panel of Chinese firms

Sai Ding, John Knight and Xiao Zhang

The European Journal of Finance, 2019, vol. 25, issue 6, 489-507

Abstract: This paper uses a dataset of more than 100,000 firms over the period of 2000–2007 to assess whether and why Chinese firms overinvest. We find that corporate investment is more efficient in the non-state sector. Within all ownership categories, we uncover evidence indicating a degree of overinvestment among firms that invest more than their industry median or more than their predicted optimal investment. The free cash flow hypothesis provides a good explanation for China’s overinvestment in the non-state sectors, whereas in the state sector, overinvestment is attributable to the poor screening and monitoring of enterprises by banks.

Date: 2019
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Related works:
Working Paper: Does China overinvest? Evidence from a panel of Chinese firms (2012) Downloads
Working Paper: Does China overinvest? Evidence from a panel of Chinese firms (2010) Downloads
Working Paper: Does China overinvest? Evidence from a panel of Chinese firms (2010) Downloads
Working Paper: Does China overinvest? Evidence from a panel of Chinese firms (2010) Downloads
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DOI: 10.1080/1351847X.2016.1211546

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