The Role of Government in Firm Outcomes
Review of Financial Studies, Forthcoming
83 Pages Posted: 12 Dec 2017 Last revised: 14 Oct 2019
Date Written: October 10, 2019
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: Suggested Citation