Does GDP Manipulation Affect the Cost of Equity?

60 Pages Posted: 30 Jun 2020

See all articles by Guilong Cai

Guilong Cai

affiliation not provided to SSRN

Xiaoxia Li

Sun Yat-Sen University (SYSU) - Lingnan (University) College

Danglun Luo

Sun Yat-Sen University (SYSU)

Zhenyang Tang

Clark University

Date Written: April 12, 2020

Abstract

We use satellite night lights data to estimate the extent of provincial-level gross domestic product (GDP) manipulation in China and show that firms located in provinces with greater GDP manipulation have higher cost of equity. This effect is significant for local state-owned enterprises (SOEs) only; furthermore, it is more pronounced when local government officials face greater promotion pressure and when institutional ownership is lower. We also document a negative association between future earnings and GDP manipulation. Overall, our findings suggest that Chinese local governments intervene in local SOEs’ decisions to manipulate GDP figures which may cost shareholders.

Keywords: GDP manipulation; economic growth; cost of equity; China

JEL Classification: G12; G38; O11; R11

Suggested Citation

Cai, Guilong and Li, Xiaoxia and Luo, Danglun and Tang, Zhenyang, Does GDP Manipulation Affect the Cost of Equity? (April 12, 2020). Available at SSRN: https://ssrn.com/abstract=3620599 or http://dx.doi.org/10.2139/ssrn.3620599

Guilong Cai

affiliation not provided to SSRN

Xiaoxia Li (Contact Author)

Sun Yat-Sen University (SYSU) - Lingnan (University) College ( email )

135 Xingang Xi Road
Tuen Mun
Guangzhou, Guangzhou 510275
China

Danglun Luo

Sun Yat-Sen University (SYSU) ( email )

135, Xingang Xi Road
Guangzhou, 510275

Zhenyang Tang

Clark University ( email )

950 Main Street
Worcester, MA 01610
United States

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