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Government intervention and corporate policies: Evidence from China

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  • Shao, Yingying
  • Hernández, Rodrigo
  • Liu, Pu

Abstract

This study examines two channels through which Chinese government intervenes in business activities: direct intervention via government ownership and indirect intervention via strategic development plans in selected areas. The findings show that these interventions affect corporate policies differently and have opposite effects on financing policies: while firms with higher level of government ownership tend to use higher leverage, more long-term debt and hold less cash, and such effects are more pronounced with central government ownership, reverse effect is related with strategic development plans. In addition, the study shows that indirect intervention alleviates the impact of direct intervention on firms' financing policy. In terms of investment policies, both forms of intervention are related to higher investment expenditures and poorer performance. The effect of government ownership on firms' leverage has become less significant after the establishment of corporate bond market in China.

Suggested Citation

  • Shao, Yingying & Hernández, Rodrigo & Liu, Pu, 2015. "Government intervention and corporate policies: Evidence from China," Journal of Business Research, Elsevier, vol. 68(6), pages 1205-1215.
    • Handle: RePEc:eee:jbrese:v:68:y:2015:i:6:p:1205-1215
    DOI: 10.1016/j.jbusres.2014.11.015
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