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The Impact of Government Intervention on Corporate Investment Allocations and Efficiency: Evidence from China

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  • Ying Hao
  • Jing Lu
Abstract
We examine whether government intervention plays an important role in determining corporate investment allocations and efficiency in China. We find the government tends to intervene to promote corporate investment in fixed assets, equity in other state†owned enterprises (SOEs), and natural resources including oil, natural gas, and mines, but reduces research and development (R&D) investment. However, the effects of government intervention on these investment allocations are primarily found in local SOEs rather than in central SOEs or in private enterprise. Government intervention also induces a crowding†out effect in natural resource investments of private firms, suggesting that government intervention distorts investment allocations and reduces investment efficiency.

Suggested Citation

  • Ying Hao & Jing Lu, 2018. "The Impact of Government Intervention on Corporate Investment Allocations and Efficiency: Evidence from China," Financial Management, Financial Management Association International, vol. 47(2), pages 383-419, June.
    • Handle: RePEc:bla:finmgt:v:47:y:2018:i:2:p:383-419
    DOI: 10.1111/fima.12188
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