Missing the Boat: Regulatory Approval Delay and Investment Project Outcomes
67 Pages Posted: 31 Jul 2020 Last revised: 29 Jun 2022
Date Written: June 29, 2022
By using unique hand-collected project-level investment data on Chinese private investments in public equity (PIPE) issuances, we show that the length of the regulatory approval process for equity issuance is positively related to the probability of subsequent changes in equity-financed projects and a deterioration in project returns. The effects are more pronounced for firms in a highly competitive industry and with a comparative disadvantage. Furthermore, we show that this relationship is causal by exploiting the exogenous shock to approval delay caused by changes in the Chairman of the China Securities Regulation Commission. In response, equity issuers mitigate the delay impact by temporarily increasing debt financing. Finally, we show that traditional firm-level investment data fail to detect such effects.
Keywords: Corporate Investment, Project Financing, Private Investment in Public Equity, Equity Issuance Regulation, Regulatory Approval Delay, Regulatory Financing Constraints
JEL Classification: G3, G14, G38
Suggested Citation: Suggested Citation