The Role of Government in Firm Outcomes

Review of Financial Studies, Forthcoming

83 Pages Posted: 12 Dec 2017 Last revised: 14 Oct 2019

See all articles by Ran Duchin

Ran Duchin

University of Washington - Michael G. Foster School of Business

Zhenyu Gao

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Haibing Shu

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Date Written: October 10, 2019

Abstract

Using a unique setting in China, where the geographic distance between Collective firms and local governments is highly persistent due to legal restrictions on land ownership and mobility, we investigate the role of government involvement in small firms. In the analysis of survey responses, we find that weaker government involvement, measured by greater distance from government, is associated with higher firm autonomy and reduced taxes, protectionism, and anti-competitive behavior. In the analysis of firm-level financial data, we find that distant firms have better operating performance and higher growth and entry rates. We find similar results around exogenous government office relocations.

Keywords: geographic distance, government, World Bank, China

JEL Classification: D72, P16

Suggested Citation

Duchin, Ran and Gao, Zhenyu and Shu, Haibing, The Role of Government in Firm Outcomes (October 10, 2019). Review of Financial Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3084660 or http://dx.doi.org/10.2139/ssrn.3084660

Ran Duchin (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Zhenyu Gao

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong
(852)39431824 (Phone)

HOME PAGE: http://sites.google.com/site/gao515515/

Haibing Shu

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

No.1954 Huashan Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200052
China

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