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Signaling through government subsidy: Certification or endorsement

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  • Yan, Ziqiao
  • Li, Yue

Abstract

We document the credit transmission channel of monetary policy in China by examining the signaling effect of government subsidies on the credit transmission process. We divide the signaling effect of government subsidies into a certification effect (indicating that firms have good quality) and an endorsement effect (indicating that firms have the recessive guarantee of government). Our results show that banks pay more attention to the endorsement effect of government subsidies when they make credit decisions, especially during tight money periods.

Suggested Citation

  • Yan, Ziqiao & Li, Yue, 2018. "Signaling through government subsidy: Certification or endorsement," Finance Research Letters, Elsevier, vol. 25(C), pages 90-95.
    • Handle: RePEc:eee:finlet:v:25:y:2018:i:c:p:90-95
    DOI: 10.1016/j.frl.2017.10.007
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    8. Yan, Ziqiao & Li, Wanli & Tang, Xiaobo & Wang, Hua, 2022. "Overseas corporate social responsibility engagement and competitive neutrality of government subsidies: Evidence from multinational enterprises in emerging markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).
    9. Weiwei Gao & Ting Cao & Zhen Huang, 2021. "Do outsiders listen to insiders? The role of government support in market reactions to earnings announcements," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(4), pages 781-795, June.
    10. Qiao, Lu & Fei, Junjun, 2022. "Government subsidies, enterprise operating efficiency, and “stiff but deathless” zombie firms," Economic Modelling, Elsevier, vol. 107(C).
    11. Yang, Yan & Wang, Yuqian & Chen, Shou, 2022. "Do Investors Pay a Premium for Corporate Government Subsidy? Role of China's Strategic Emerging Industries Policy and Political Connections," Research in International Business and Finance, Elsevier, vol. 60(C).
    12. Guo, Feng & Zou, Bo & Zhang, Xiaofei & Bo, Qingwen & Li, Kai, 2020. "Financial slack and firm performance of SMMEs in China: Moderating effects of government subsidies and market-supporting institutions," International Journal of Production Economics, Elsevier, vol. 223(C).
    13. Fan, Wei & Ying, Qianwei & Meng, Guo, 2023. "The signaling effect of policy loans: Do commercial banks follow up or stand by?," Finance Research Letters, Elsevier, vol. 56(C).
    14. Yi-Chang Chen & Yi-Xuan Fu & Yang Qiao & Shih-Ming Kuo, 2023. "Do Subsidy Policy and Transparency Impact Firm Value in the New Energy Industry? Evidence from Data Envelopment Analysis-Based Measurement of Corporate Subsidy Performance," Sustainability, MDPI, vol. 15(13), pages 1-20, June.
    15. Gao, Weiwei & Huang, Zhen & Yang, Ping, 2019. "Political connections, corporate governance and M&A performance: Evidence from Chinese family firms," Research in International Business and Finance, Elsevier, vol. 50(C), pages 38-53.
    16. Yu, Feifei & Du, Hongyan & Li, Xiaotong & Cao, Jiayu, 2023. "Enterprise digitalization, business strategy and subsidy allocation: Evidence of the signaling effect," Technological Forecasting and Social Change, Elsevier, vol. 190(C).
    17. Lin, Boqiang & Xie, Yongjing, 2023. "The impact of government subsidies on capacity utilization in the Chinese renewable energy industry: Does technological innovation matter?," Applied Energy, Elsevier, vol. 352(C).
    18. Xuemeng Guo & Jiaxin Ma & Yuting Feng & Bingyao Chen, 2023. "Green Credit Policy and Short-Term Financing for Long-Term Investment: Evidence from China’s Heavily Polluting Enterprises," Sustainability, MDPI, vol. 15(24), pages 1-18, December.
    19. Li, Bin & Liang, Yilan & Shahab, Yasir & Gull, Ammar Ali & Ashraf, Naeem, 2022. "Parent-subsidiary dispersion, cost of debt and debt default: Evidence from China," Economic Modelling, Elsevier, vol. 107(C).
    20. Chen Weijun, 2022. "The Impact of Government Support and Technological Innovation on Enterprise Performance: A Case Study of Guangdong Hi- tech Enterprises," International Journal of Science and Business, IJSAB International, vol. 14(1), pages 196-231.

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    More about this item

    Keywords

    Government subsidy; Signaling effect; Monetary policy;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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