Publication Type
Journal Article
Version
acceptedVersion
Publication Date
1-2018
Abstract
China has been adopting a “mercantilist” policy by lavishing massive government subsidies on Chinese firms. Using hand-collected subsidy data on Chinese listed companies, we find that firms receiving more subsidies tend to have a lower cost of debt. However, such firms fail to have superior financial performance. Instead, firms with more subsidies tend to be overstaffed, which demonstrates higher social performance. These results are mainly driven by non-tax-based subsidies rather than tax-based subsidies. Overall, our results suggest that the Chinese government uses non-tax-based subsidies to achieve its social policy objectives at the expense of firms’ profitability.
Keywords
Government subsidies, cost of debt, firm performance
Discipline
Accounting | Asian Studies | Corporate Finance | Economic Policy
Research Areas
Corporate Governance, Auditing and Risk Management
Publication
Journal of Banking and Finance
Volume
86
First Page
37
Last Page
52
ISSN
0378-4266
Identifier
10.1016/j.jbankfin.2017.09.004
Publisher
Elsevier
Citation
LIM, Chu Yeong; WANG, Jiwei; and ZENG, Cheng (Colin).
China's "Mercantilist" government subsidies, the cost of debt and firm performance. (2018). Journal of Banking and Finance. 86, 37-52.
Available at: https://ink.library.smu.edu.sg/soa_research/1766
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.jbankfin.2017.09.004
Included in
Accounting Commons, Asian Studies Commons, Corporate Finance Commons, Economic Policy Commons