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Decentralization and firm investment: Evidence from China

Journal Article


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Abstract


  • Taking advantage of decentralization reform that enlarges the authority of

    county government in China, we construct a quasi-experiment. Using a large

    sample of Chinese firms, we show that after the implementation of decentralization

    reform, firms located in decentralized counties experienced a significant

    increase in investment expenditure compared with other firms. We

    also find that after the decentralization reform, state owned enterprises

    (SOEs) experienced greater increase in investment expenditure on average

    compared with non-SOEs, and that, within non-SOEs, collective firms have

    an even larger increase in investments, followed by foreign firms and private

    firms. Further analysis shows that the influence of decentralization reform

    was more significant in more developed markets, and that the increased

    investment was associated with improved productivity, which was more pronounced

    in SOEs. These results are robust to an alternative sample and endogeneity

    issues. Overall, these findings support the view that decentralization

    reform improves government efficiency and creates positive externalities,

    thereby encouraging firms to invest.

UOW Authors


  •   Pan, Xiaofei
  •   Wu, Yiping (external author)
  •   Wu, Huihang (external author)

Publication Date


  • 2018

Citation


  • Pan, X., Wu, Y. & Wu, H. (2018). Decentralization and firm investment: Evidence from China. International Review of Finance, Online first

Scopus Eid


  • 2-s2.0-85041030927

Ro Full-text Url


  • http://ro.uow.edu.au/context/buspapers/article/2393/type/native/viewcontent

Ro Metadata Url


  • http://ro.uow.edu.au/buspapers/1380

Volume


  • Online first

Place Of Publication


  • Australia

Abstract


  • Taking advantage of decentralization reform that enlarges the authority of

    county government in China, we construct a quasi-experiment. Using a large

    sample of Chinese firms, we show that after the implementation of decentralization

    reform, firms located in decentralized counties experienced a significant

    increase in investment expenditure compared with other firms. We

    also find that after the decentralization reform, state owned enterprises

    (SOEs) experienced greater increase in investment expenditure on average

    compared with non-SOEs, and that, within non-SOEs, collective firms have

    an even larger increase in investments, followed by foreign firms and private

    firms. Further analysis shows that the influence of decentralization reform

    was more significant in more developed markets, and that the increased

    investment was associated with improved productivity, which was more pronounced

    in SOEs. These results are robust to an alternative sample and endogeneity

    issues. Overall, these findings support the view that decentralization

    reform improves government efficiency and creates positive externalities,

    thereby encouraging firms to invest.

UOW Authors


  •   Pan, Xiaofei
  •   Wu, Yiping (external author)
  •   Wu, Huihang (external author)

Publication Date


  • 2018

Citation


  • Pan, X., Wu, Y. & Wu, H. (2018). Decentralization and firm investment: Evidence from China. International Review of Finance, Online first

Scopus Eid


  • 2-s2.0-85041030927

Ro Full-text Url


  • http://ro.uow.edu.au/context/buspapers/article/2393/type/native/viewcontent

Ro Metadata Url


  • http://ro.uow.edu.au/buspapers/1380

Volume


  • Online first

Place Of Publication


  • Australia