Social Stability and Resource Allocation within Business Groups

56 Pages Posted: 16 Oct 2018 Last revised: 29 Feb 2020

See all articles by Haikun Zhu

Haikun Zhu

Erasmus University Rotterdam

Date Written: February 26, 2020

Abstract

Exploiting data on intra-group transactions and unexpected shocks to regional stability in China, I show that the business groups of state-owned enterprises (SOEs) use internal funds to address social unrest. The government allocates more funds to SOEs in areas affected by social unrest, which are then used, at shareholders’ costs, to generate additional labor payments and investments. However, social sentiment recovers, given these benefits. This SOE channel is large in magnitude, compared to fiscal redistribution, and is stronger when local governments are budget-constrained. This paper provides evidence that the intra-group allocation of resources incorporates political objectives and generates socio-economic impact.

Keywords: business groups, internal capital market, political economy, social stability

JEL Classification: G32, G34, D74, P16

Suggested Citation

Zhu, Haikun, Social Stability and Resource Allocation within Business Groups (February 26, 2020). Institute for New Economic Thinking Working Paper Series No. 79, Available at SSRN: https://ssrn.com/abstract=3258210 or http://dx.doi.org/10.2139/ssrn.3258210

Haikun Zhu (Contact Author)

Erasmus University Rotterdam ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

HOME PAGE: http://https://sites.google.com/site/zhuhaikun2018/home

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