State Ownership and the Allocation of Capital

57 Pages Posted: 16 Dec 2018 Last revised: 22 Feb 2019

See all articles by Chun Kuang

Chun Kuang

University of International Business and Economics (UIBE) - School of Banking and Finance

Wenyu Zhu

Renmin University of China - School of Finance

Date Written: February 19, 2019

Abstract

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

Kuang, Chun and Zhu, Wenyu, State Ownership and the Allocation of Capital (February 19, 2019). Available at SSRN: https://ssrn.com/abstract=3275811 or http://dx.doi.org/10.2139/ssrn.3275811

Chun Kuang (Contact Author)

University of International Business and Economics (UIBE) - School of Banking and Finance ( email )

No.10, Huixindong Street
Chaoyang District
Beijing, 100029
China

Wenyu Zhu

Renmin University of China - School of Finance ( email )

59 Zhongguancun Street
Beijing, 100872
China

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