State Control, Access to Capital, and Firm Performance

49 Pages Posted: 2 Jun 2012

See all articles by Oliver Zhen Li

Oliver Zhen Li

National University of Singapore (NUS)

Xijia Su

China Europe International Business School (CEIBS)

Zhifeng Yang

Stony Brook University

Date Written: May 1, 2012

Abstract

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.

Keywords: State control, Access to capital, Firm growth, Regulation

JEL Classification: G30; G32; G38

Suggested Citation

Li, Oliver Zhen and Su, Xijia and Yang, Zhifeng, State Control, Access to Capital, and Firm Performance (May 1, 2012). Available at SSRN: https://ssrn.com/abstract=2072914 or http://dx.doi.org/10.2139/ssrn.2072914

Oliver Zhen Li

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

Xijia Su

China Europe International Business School (CEIBS) ( email )

699 Hongfeng Road, Pudong
Shanghai 201206
China

Zhifeng Yang (Contact Author)

Stony Brook University ( email )

Health Science Center
Level 3, Room 043
Stony Brook, NY 11794-8322
United States

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