State Control, Access to Capital, and Firm Performance
49 Pages Posted: 2 Jun 2012
Date Written: May 1, 2012
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: Suggested Citation