IDEAS home Printed from https://ideas.repec.org/a/eee/deveco/v160y2023ics0304387822001213.html
   My bibliography  Save this article

Trade-induced competition and ownership dynamics

Author

Listed:
  • Hu, Qing
  • Li, Wenjing
  • Lin, Chen
  • Wei, Lai

Abstract

This paper documents a causal effect of trade-induced competition on firms’ ownership dynamics using the largest trade liberalization China has experienced, its accession to the World Trade Organization. By exploiting varying degrees of tariff reductions across industries, we find that firms that are more affected by competitive shocks experience a larger relative increase in their foreign ownership compared with those less affected. In addition, we find a stronger (weaker) effect for firms with a greater (lesser) demand for external financing and technology, which indicates the strategic role of foreign shareholders in empowering domestic firms to obtain financing and new technologies in a competitive market.

Suggested Citation

  • Hu, Qing & Li, Wenjing & Lin, Chen & Wei, Lai, 2023. "Trade-induced competition and ownership dynamics," Journal of Development Economics, Elsevier, vol. 160(C).
    • Handle: RePEc:eee:deveco:v:160:y:2023:i:c:s0304387822001213
    DOI: 10.1016/j.jdeveco.2022.102979
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304387822001213
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jdeveco.2022.102979?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Andrei Shleifer, 1998. "State versus Private Ownership," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 133-150, Fall.
    2. Sergey Mityakov & Heiwai Tang & Kevin K. Tsui, 2013. "International Politics and Import Diversification," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 1091-1121.
    3. Eckel, Catherine C & Vermaelen, Theo, 1986. "Internal Regulation: The Effects of Government Ownership on the Value of the Firm," Journal of Law and Economics, University of Chicago Press, vol. 29(2), pages 381-403, October.
    4. Philippe Aghion & Jing Cai & Mathias Dewatripont & Luosha Du & Ann Harrison & Patrick Legros, 2022. "Industrial Policy and Competition," World Scientific Book Chapters, in: Globalization, Firms, and Workers, chapter 15, pages 349-380, World Scientific Publishing Co. Pte. Ltd..
    5. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(2), pages 701-728.
    6. Nicholas Bloom & Mirko Draca & John Van Reenen, 2016. "Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(1), pages 87-117.
    7. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 2006. "What Works in Securities Laws?," Journal of Finance, American Finance Association, vol. 61(1), pages 1-32, February.
    8. Boardman, Anthony E & Vining, Aidan R, 1989. "Ownership and Performance in Competitive Environments: A Comparison of the Performance of Private, Mixed, and State-Owned Enterprises," Journal of Law and Economics, University of Chicago Press, vol. 32(1), pages 1-33, April.
    9. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 3-27.
    10. Yi Lu & Travis Ng, 2013. "Import Competition and Skill Content in U.S. Manufacturing Industries," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1404-1417, October.
    11. Chris Edmond & Virgiliu Midrigan & Daniel Yi Xu, 2015. "Competition, Markups, and the Gains from International Trade," American Economic Review, American Economic Association, vol. 105(10), pages 3183-3221, October.
    12. Cull, Robert & Xu, Lixin Colin, 2005. "Institutions, ownership, and finance: the determinants of profit reinvestment among Chinese firms," Journal of Financial Economics, Elsevier, vol. 77(1), pages 117-146, July.
    13. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-488, June.
    14. Maria Guadalupe & Olga Kuzmina & Catherine Thomas, 2012. "Innovation and Foreign Ownership," American Economic Review, American Economic Association, vol. 102(7), pages 3594-3627, December.
    15. Andrew Ellul & Marco Pagano & Fausto Panunzi, 2010. "Inheritance Law and Investment in Family Firms," American Economic Review, American Economic Association, vol. 100(5), pages 2414-2450, December.
    16. Mark Humphery-Jenner & Jo-Ann Suchard, 2013. "Foreign venture capitalists and the internationalization of entrepreneurial companies: Evidence from China," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 44(6), pages 607-621, August.
    17. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    18. Andrew Ellul & Marco Pagano & Fabiano Schivardi, 2018. "Employment and Wage Insurance within Firms: Worldwide Evidence," The Review of Financial Studies, Society for Financial Studies, vol. 31(4), pages 1298-1340.
    19. Kole, Stacey R & Mulherin, J Harold, 1997. "The Government as a Shareholder: A Case from the United States," Journal of Law and Economics, University of Chicago Press, vol. 40(1), pages 1-22, April.
    20. Shu Lin & Haichun Ye, 2018. "Foreign Direct Investment, Trade Credit, and Transmission of Global Liquidity Shocks: Evidence from Chinese Manufacturing Firms," The Review of Financial Studies, Society for Financial Studies, vol. 31(1), pages 206-238.
    21. Luong, Hoang & Moshirian, Fariborz & Nguyen, Lily & Tian, Xuan & Zhang, Bohui, 2017. "How Do Foreign Institutional Investors Enhance Firm Innovation?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(4), pages 1449-1490, August.
    22. Laeven, Luc & Levine, Ross, 2009. "Bank governance, regulation and risk taking," Journal of Financial Economics, Elsevier, vol. 93(2), pages 259-275, August.
    23. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation," Scholarly Articles 29407535, Harvard University Department of Economics.
    24. Lixin Colin Xu & Tian Zhu & Yi‐min Lin, 2005. "Politician control, agency problems and ownership reform," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(1), pages 1-24, January.
    25. Lybbert, Travis J. & Zolas, Nikolas J., 2014. "Getting patents and economic data to speak to each other: An ‘Algorithmic Links with Probabilities’ approach for joint analyses of patenting and economic activity," Research Policy, Elsevier, vol. 43(3), pages 530-542.
    26. repec:wip:wpaper:5 is not listed on IDEAS
    27. Paul H. Malatesta & Kathryn L. DeWenter, 2001. "State-Owned and Privately Owned Firms: An Empirical Analysis of Profitability, Leverage, and Labor Intensity," American Economic Review, American Economic Association, vol. 91(1), pages 320-334, March.
    28. Amit K. Khandelwal & Peter K. Schott & Shang-Jin Wei, 2013. "Trade Liberalization and Embedded Institutional Reform: Evidence from Chinese Exporters," American Economic Review, American Economic Association, vol. 103(6), pages 2169-2195, October.
    29. Paul A. Gompers & Joy Ishii & Andrew Metrick, 2010. "Extreme Governance: An Analysis of Dual-Class Firms in the United States," The Review of Financial Studies, Society for Financial Studies, vol. 23(3), pages 1051-1088, March.
    30. Jean Helwege & Christo Pirinsky & René M. Stulz, 2007. "Why Do Firms Become Widely Held? An Analysis of the Dynamics of Corporate Ownership," Journal of Finance, American Finance Association, vol. 62(3), pages 995-1028, June.
    31. Calomiris, Charles W. & Fisman, Raymond & Wang, Yongxiang, 2010. "Profiting from government stakes in a command economy: Evidence from Chinese asset sales," Journal of Financial Economics, Elsevier, vol. 96(3), pages 399-412, June.
    32. Hiau Looi Kee & Heiwai Tang, 2016. "Domestic Value Added in Exports: Theory and Firm Evidence from China," American Economic Review, American Economic Association, vol. 106(6), pages 1402-1436, June.
    33. Klapper, Leora & Laeven, Luc & Love, Inessa, 2006. "Corporate governance provisions and firm ownership: Firm-level evidence from Eastern Europe," Journal of International Money and Finance, Elsevier, vol. 25(3), pages 429-444, April.
    34. Nicholas Bloom & Raffaella Sadun & John Van Reenen, 2010. "Does Product Market Competition Lead Firms to Decentralize?," American Economic Review, American Economic Association, vol. 100(2), pages 434-438, May.
    35. Justin R. Pierce & Peter K. Schott, 2016. "The Surprisingly Swift Decline of US Manufacturing Employment," American Economic Review, American Economic Association, vol. 106(7), pages 1632-1662, July.
    36. Luc Laeven & Ross Levine, 2008. "Complex Ownership Structures and Corporate Valuations," The Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 579-604, April.
    37. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, April.
    38. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-1177, December.
    39. Travis J. Lybbert & Nikolas J. Zolas, 2012. "Getting Patents & Economic Data to Speak to Each Other: An ‘Algorithmic Links with Probabilities’ Approach for Joint Analyses of Patenting & Economic Activity," WIPO Economic Research Working Papers 05, World Intellectual Property Organization - Economics and Statistics Division, revised Oct 2012.
    40. Dahlquist, Magnus & Robertsson, Goran, 2001. "Direct foreign ownership, institutional investors, and firm characteristics," Journal of Financial Economics, Elsevier, vol. 59(3), pages 413-440, March.
    41. Jan Bena & Ting Xu, 2017. "Competition and Ownership Structure of Closely Held Firms," The Review of Financial Studies, Society for Financial Studies, vol. 30(5), pages 1583-1626.
    42. Yi Lu Jr. & Linhui Yu Jr., 2015. "Trade Liberalization and Markup Dispersion: Evidence from China's WTO Accession," American Economic Journal: Applied Economics, American Economic Association, vol. 7(4), pages 221-253, October.
    43. Raymond Fisman & Yongxiang Wang, 2010. "Trading Favors within Chinese Business Groups," American Economic Review, American Economic Association, vol. 100(2), pages 429-433, May.
    44. Brown, M. & Kirschenmann, K. & Ongena, S., 2009. "Foreign Currency Loans - Demand or Supply Driven?," Discussion Paper 2009-78, Tilburg University, Center for Economic Research.
    45. Loren Brandt & Johannes Van Biesebroeck & Luhang Wang & Yifan Zhang, 2017. "WTO Accession and Performance of Chinese Manufacturing Firms," American Economic Review, American Economic Association, vol. 107(9), pages 2784-2820, September.
    46. Borisova, Ginka & Fotak, Veljko & Holland, Kateryna & Megginson, William L., 2015. "Government ownership and the cost of debt: Evidence from government investments in publicly traded firms," Journal of Financial Economics, Elsevier, vol. 118(1), pages 168-191.
    47. Giroud, Xavier & Mueller, Holger M., 2010. "Does corporate governance matter in competitive industries?," Journal of Financial Economics, Elsevier, vol. 95(3), pages 312-331, March.
    48. Chong-En Bai & Jiangyong Lu & Zhigang Tao, 2006. "The Multitask Theory of State Enterprise Reform: Empirical Evidence from China," American Economic Review, American Economic Association, vol. 96(2), pages 353-357, May.
    49. Li, Hongbin & Meng, Lingsheng & Wang, Qian & Zhou, Li-An, 2008. "Political connections, financing and firm performance: Evidence from Chinese private firms," Journal of Development Economics, Elsevier, vol. 87(2), pages 283-299, October.
    50. Xavier Giroud & Holger M. Mueller, 2011. "Corporate Governance, Product Market Competition, and Equity Prices," Journal of Finance, American Finance Association, vol. 66(2), pages 563-600, April.
    51. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
    52. Amiti, Mary & Dai, Mi & Feenstra, Robert C. & Romalis, John, 2020. "How did China's WTO entry affect U.S. prices?," Journal of International Economics, Elsevier, vol. 126(C).
    53. Ferreira, Miguel A. & Matos, Pedro, 2008. "The colors of investors' money: The role of institutional investors around the world," Journal of Financial Economics, Elsevier, vol. 88(3), pages 499-533, June.
    54. Lu, Yi & Shao, Xiang & Tao, Zhigang, 2018. "Exposure to Chinese imports and media slant: Evidence from 147 U.S. local newspapers over 1998–2012," Journal of International Economics, Elsevier, vol. 114(C), pages 316-330.
    55. Andrei Shleifer & Robert W. Vishny, 1994. "Politicians and Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 995-1025.
    56. Ana Cecília Fieler & Marcela Eslava & Daniel Yi Xu, 2018. "Trade, Quality Upgrading, and Input Linkages: Theory and Evidence from Colombia," American Economic Review, American Economic Association, vol. 108(1), pages 109-146, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rareș-Mihai NIȚU, 2023. "Competition policies and legislation regarding the European-Asian economic corridors," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(636), A), pages 209-218, Autumn.
    2. Beccari, Gabriele & Pisicoli, Beniamino & Vocalelli, Giorgio, 2023. "Barbarians at the gate? FDI and target firms’ management quality," MPRA Paper 117242, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fuxiu Jiang & Kenneth A Kim, 2020. "Corporate Governance in China: A Survey [The role of boards of directors in corporate governance: a conceptual framework and survey]," Review of Finance, European Finance Association, vol. 24(4), pages 733-772.
    2. Victor Chen & Jing Li & Daniel Shapiro, 2011. "Are OECD-prescribed “good corporate governance practices” really good in an emerging economy?," Asia Pacific Journal of Management, Springer, vol. 28(1), pages 115-138, March.
    3. Randall Morck, 2011. "Finance and Governance in Developing Economies," Annual Review of Financial Economics, Annual Reviews, vol. 3(1), pages 375-406, December.
    4. Zeineb Barka & Taher Hamza, 2020. "The effect of large controlling shareholders on equity prices in France: monitoring or entrenchment?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 24(3), pages 769-798, September.
    5. Morck, Randall & Deniz Yavuz, M. & Yeung, Bernard, 2011. "Banking system control, capital allocation, and economy performance," Journal of Financial Economics, Elsevier, vol. 100(2), pages 264-283, May.
    6. Bernardo Bortolotti & Mara Faccio, 2004. "Reluctant Privatization," Working Papers 2004.130, Fondazione Eni Enrico Mattei.
    7. Tao Chen & Chen Lin & Xiang Shao, 2022. "Globalization and U.S. Corporate Tax Policies: Evidence from Import Competition," Management Science, INFORMS, vol. 68(8), pages 6145-6162, August.
    8. Oxelheim, Lars & Randoy, Trond, 2003. "The impact of foreign board membership on firm value," Journal of Banking & Finance, Elsevier, vol. 27(12), pages 2369-2392, December.
    9. Kong, Dongmin & Kong, Gaowen & Liu, Shasha & Zhu, Ling, 2022. "Does competition cause government decentralization? The case of state-owned enterprises," Journal of Comparative Economics, Elsevier, vol. 50(4), pages 1103-1122.
    10. Chen, Cheng & Steinwender, Claudia, 2021. "Import competition, heterogeneous preferences of managers, and productivity," Journal of International Economics, Elsevier, vol. 133(C).
    11. Mike Burkart & Samuel Lee, 2008. "One Share - One Vote: the Theory," Review of Finance, European Finance Association, vol. 12(1), pages 1-49.
    12. Saghi-Zedek, Nadia & Tarazi, Amine, 2015. "Excess control rights, financial crisis and bank profitability and risk," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 361-379.
    13. Christopher Hansen & Joern Block & Matthias Neuenkirch, 2020. "Family Firm Performance Over The Business Cycle: A Meta‐Analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 34(3), pages 476-511, July.
    14. Beuselinck, Christof & Cao, Lihong & Deloof, Marc & Xia, Xinping, 2017. "The value of government ownership during the global financial crisis," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 481-493.
    15. Daniel Berkowitz & Shuichiro Nishioka, "undated". "The Growth of Firms, Markets and Rents: Evidence from China," Working Papers 24-01, Department of Economics, West Virginia University.
    16. Henk Berkman & Rebel A. Cole & Lawrence J. Fu, 2014. "Improving corporate governance where the State is the controlling block holder: evidence from China," The European Journal of Finance, Taylor & Francis Journals, vol. 20(7-9), pages 752-777, September.
    17. Feng, Fang & Sun, Qian & Tong, Wilson H. S., 2004. "Do government-linked companies underperform?," Journal of Banking & Finance, Elsevier, vol. 28(10), pages 2461-2492, October.
    18. Khosa,Amrinder & Ahmed,Kamran & Henry,Darren, 2019. "Ownership Structure, Related Party Transactions, and Firm Valuation," Cambridge Books, Cambridge University Press, number 9781108492195.
    19. Moshirian, Fariborz & Thi Nguyen, Thuy & Zhang, Bohui, 2022. "How does firm size explain cross-country differences in ownership concentration?," Journal of Multinational Financial Management, Elsevier, vol. 65(C).
    20. Jiang, Fuxiu & Kim, Kenneth A. & Nofsinger, John R. & Zhu, Bing, 2017. "A pecking order of shareholder structure," Journal of Corporate Finance, Elsevier, vol. 44(C), pages 1-14.

    More about this item

    Keywords

    Trade liberalization; Competition; Ownership dynamics;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:deveco:v:160:y:2023:i:c:s0304387822001213. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/devec .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.