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Does China overinvest? Evidence from a panel of Chinese firms

Sai Ding (), Alessandra Guariglia () and John Knight

Discussion Papers from University of Nottingham, GEP

Abstract: This paper uses a dataset of more than 100,000 firms over the period of 2000-07 to assess whether and why Chinese firms overinvest. We find that corporate investment in China has become increasingly efficient over time, which suggests that overinvestment has been declining. However, within all ownership categories, we find evidence indicating a degree of overinvestment by firms that invest more than the industry median. The free cash flow hypothesis provides a good explanation for China’s overinvestment in the collective and private sectors, whereas in the state sector, overinvestment is attributable to the poor screening and monitoring of enterprises by banks.

Keywords: Overinvestment; Investment efficiency; Free cash flow; Leverage; China (search for similar items in EconPapers)
Date: 2012
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https://www.nottingham.ac.uk/gep/documents/papers/2012/12-04.pdf (application/pdf)

Related works:
Journal Article: Does China overinvest? Evidence from a panel of Chinese firms (2019) 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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