Government Intervention and Corporate Investment Efficiency: Evidence from China

摘要

Apart from agency conflicts and information asymmetry between managers and shareholders, potential investors or creditors, which prevent companies from making optimal investment decisions, government intervention is another form of friction, especially common in the economic transitional settings, distorts corporate investment behavior and leads to investment inefficiency. Chinese investment system reform in 2004 aims to restrict government intervention on corporate investment and causes an exogenous shock to firm’s investment environment. In the quasi-natural experiment, difference-in-differences analysis shows that investment efficiency promotes after the investment system reform and the result is robust to an alternative model specification and placebo test. Further analysis shows that the improvement of investment efficiency concentrates among non-SOEs. The findings indicate that the investment system reform in China has alleviated the government intervention in corporate investment and improved the firm’s investment efficiency as well.