Missing the Boat: Lengthy Regulatory Approval Diminishes Investment Opportunities at the Project Level
62 Pages Posted: 31 Jul 2020 Last revised: 1 Mar 2021
Date Written: July 4, 2020
By using unique hand-collected project-level investment data, we show that lengthy equity issuance regulation is positively related to the probability of subsequent project changes and a deterioration in project returns. The effects are more pronounced for firms in a highly competitive industry and with a comparative disadvantage. We further establish that this relationship is causal by exploiting the exogenous shock to approval delay caused by changes in the China Securities Regulation Commission chairman. In response, equity issuers mitigate the delay impact by temporarily increasing short-term debt. Finally, we show that the 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