State control, access to capital and firm performance

We study the effect of state control on capital allocation and investment in China, where the government screens prospective stock issuers. We find that state firms are more likely to obtain government approval to conduct seasoned equity offerings than non-state firms. Further, non-state firms exhib...

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Bibliographic Details
Published in:China journal of accounting research 2012-06, Vol.5 (2), p.101-125
Main Authors: Li, Oliver Zhen, Su, Xijia, Yang, Zhifeng
Format: Article
Language:English
Subjects:
Access
Access to capital
capital
control
Firm
Firm growth
growth
Regula
Regulation
State
State control
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Summary:We study the effect of state control on capital allocation and investment in China, where the government screens prospective stock issuers. We find that state firms are more likely to obtain government approval to conduct seasoned equity offerings than non-state firms. Further, non-state firms exhibit greater sensitivities of subsequent investment and stock performance to regulatory decisions on stock issuances than state firms. Our work suggests that state control of capital access distorts resource allocation and impedes the growth of non-state firms. We also provide robust evidence that financial constraints cause underinvestment.
ISSN:1755-3091
2214-1421
DOI:10.1016/j.cjar.2012.05.001