Does China overinvest? Evidence from a panel of Chinese firms

Sai Ding, Alessandra Guariglia and John Knight

No 2010_05, Department of Economics Working Papers from Durham University, Department of Economics

Abstract: This paper addresses the hotly-debated question: do Chinese firms overinvest? A firm-level dataset of 100,000 firms over the period of 2000-07 is employed for this purpose. We initially calculate measures of investment efficiency, which is typically negatively associated with overinvestment. Despite wide disparities across various ownership groups, industries and regions, we find that corporate investment in China has become increasingly efficient over time. However, based on direct measures of overinvestment that we subsequently calculate, we find evidence of overinvestment for all types of firms, even in the most efficient and most profitable private sector. We find that the free cash flow hypothesis provides a good explanation for China‟s overinvestment, especially for the private sector, while in the state sector, overinvestment is attributable to the poor screening and monitoring of enterprises by banks

Keywords: Overinvestment; Investment efficiency; Free cash flow; Debt; China (search for similar items in EconPapers)
JEL-codes: G31 O16 O53 (search for similar items in EconPapers)
Date: 2010-01-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://dro.dur.ac.uk/10353 main text (application/pdf)

Related works:
Journal Article: Does China overinvest? Evidence from a panel of Chinese firms (2019)
Working Paper: Does China overinvest? Evidence from a panel of Chinese firms (2012)
Working Paper: Does China overinvest? Evidence from a panel of Chinese firms (2010)
Working Paper: Does China overinvest? Evidence from a panel of Chinese firms (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:dur:durham:2010_05

Access Statistics for this paper

More papers in Department of Economics Working Papers from Durham University, Department of Economics Durham University Business School, Mill Hill Lane, Durham DH1 3LB, England. Contact information at EDIRC.
Bibliographic data for series maintained by Tatiana Damjanovic ().