State Ownership and the Allocation of Capital
57 Pages Posted: 16 Dec 2018 Last revised: 22 Feb 2019
Date Written: February 19, 2019
This paper studies the capital allocation decisions of firms that are comparable except for ownership under a unique setting using investment level data. We find allocative inefficiency across ownership to be exacerbated under policy distortions through subsidized credits targeted at state-owned firms. Curiously, we also find state-owned firms to concentrate more capital in certain markets even after returns on investment are dampened by negative policy shocks, suggesting that moral hazard could be a real concern. In addition to cross-firm allocative inefficiency, our analysis provides direct evidence of inefficient capital allocation across markets by state-owned firms that exists within firm and asset class.
Keywords: State ownership, Capital allocation, Corporate investment, Government intervention
JEL Classification: G31, G32, G34, G38
Suggested Citation: Suggested Citation