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The dilemma of government intervention in a firm's financing: Evidence from China

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  • Fu, Tong

Abstract

This paper discovers the dilemma of government intervention in a firm's financing. With evidence from China, we document that government intervention causally promotes a firm's financial access but impedes the positive change of financial access (i.e., micro-financial development). Considering that our instrumental variable (IV) may be imperfectly exogenous, we apply the plausible exogeneity theory to verify that our IV estimates are robust to the relaxation of exclusion restriction. We further use mediation estimates to show that the corruption is the by-product of government intervention in financing and that the corruption due to government intervention constrains micro-financial development. Therefore, we discover that the corruption is the crux of the government-intervention dilemma.

Suggested Citation

  • Fu, Tong, 2020. "The dilemma of government intervention in a firm's financing: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:finana:v:71:y:2020:i:c:s1057521920301691
    DOI: 10.1016/j.irfa.2020.101525
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    Cited by:

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    More about this item

    Keywords

    Government intervention; Financial access; Micro-financial development; Corruption; Plausible exogeneity theory;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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