Government Intervention and Firm Investment: Evidence from International Micro-Data
Posted: 31 Jan 2010 Last revised: 7 Feb 2014
Date Written: March 10, 2013
Building on the important study by Beck, Demirguc-Kunt and Maksimovic (2005, Journal of Finance), we examine how government intervention in firms’ decision-making is related to their investment and sales growth. Using the unique World Bank dataset (WBES) covering 6,500 firms in 70 countries, we find strong evidence that the extent of government intervention in firms' investment, employment, sales, pricing, dividend, and merger and acquisition decisions is negatively related to their investment and sales growth, with the effect being more profound in foreign owned firms. The empirical results are robust to a series of robustness tests and instrumental variable regressions.
Keywords: Government Intervention, Ownership, Investment Growth
JEL Classification: G31, G32, G38
Suggested Citation: Suggested Citation