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What Drives Fixed Asset Holding and Risk-Adjusted Performance of Corporate in China? An Empirical Analysis

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  • Dong, Yan
  • Leung, Charles Ka Yui
  • Cai, Dongliang

Abstract

This paper attempts to shed light on the over-investment debate by investigating listed firms in China. Firms with higher level of fixed asset holding, higher level of overhead expenses, and being covered by the tax-favor policy in China are found to be associated with a lower risk-adjusted performance. In addition, the tax-favor policy itself encourages fixed asset investment. In contrast to some of the previous literature, state-ownership of firms, dividend policy, and ownership concentration are not robust predictors of risk-adjusted performance, and debt level, managerial shareholding, and profit per unit of asset are not robust predictors of fixed asset investment.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 29128.

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Date of creation: 2011
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Handle: RePEc:pra:mprapa:29128

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Keywords: fixed asset holding; corporate real estate; over-investment theory; state-ownership; tax-favor policy;

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References

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  1. Yi Jin & Charles K.Y. Leung & Zhixiong Zeng, 2012. "Real Estate, the External Finance Premium and Business Investment: A Quantitative Dynamic General Equilibrium Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 40(1), pages 167-195, 03.
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  6. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1, July.
  7. Charles Calomiris & Raymond Fisman & Yongxiang Wang, 2008. "Profiting from Government Stakes in a Command Economy: Evidence from Chinese Asset Sales," NBER Working Papers 13774, National Bureau of Economic Research, Inc.
  8. Leung, Charles Ka Yui & Chow, Kenneth & Yiu, Matthew & Tam, Dickson, 2010. "House Market in Chinese Cities: Dynamic Modeling, In-Sampling Fitting and Out-of-Sample Forecasting," MPRA Paper 27367, University Library of Munich, Germany.
  9. Jiang, Guohua & Lee, Charles M.C. & Yue, Heng, 2010. "Tunneling through intercorporate loans: The China experience," Journal of Financial Economics, Elsevier, Elsevier, vol. 98(1), pages 1-20, October.
  10. Huang, Guihai & Song, Frank M., 2006. "The determinants of capital structure: Evidence from China," China Economic Review, Elsevier, Elsevier, vol. 17(1), pages 14-36.
  11. Firth, Michael & Fung, Peter M.Y. & Rui, Oliver M., 2006. "Corporate performance and CEO compensation in China," Journal of Corporate Finance, Elsevier, Elsevier, vol. 12(4), pages 693-714, September.
  12. Charles Ka Yui Leung & Wei Wang, 2007. "An Examination of the Chinese Housing Market through the Lens of the DiPasquale- Wheaton Model: a Graphical Attempt," International Real Estate Review, Asian Real Estate Society, Asian Real Estate Society, vol. 10(2), pages 131-165.
  13. Gordon, Robert J., 1990. "The Measurement of Durable Goods Prices," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226304557, 01-2013.
  14. Wu, Jing & Gyourko, Joseph & Deng, Yongheng, 2012. "Evaluating conditions in major Chinese housing markets," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 42(3), pages 531-543.
  15. Cull, Robert & Xu, Lixin Colin, 2005. "Institutions, ownership, and finance: the determinants of profit reinvestment among Chinese firms," Journal of Financial Economics, Elsevier, Elsevier, vol. 77(1), pages 117-146, July.
  16. Gul, Ferdinand A. & Kim, Jeong-Bon & Qiu, Annie A., 2010. "Ownership concentration, foreign shareholding, audit quality, and stock price synchronicity: Evidence from China," Journal of Financial Economics, Elsevier, Elsevier, vol. 95(3), pages 425-442, March.
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Cited by:
  1. Hongyan Du & Yongkai Ma, 2012. "Corporate Real Estate, Capital Structure and Stock Performance: Evidence from China," International Real Estate Review, Asian Real Estate Society, Asian Real Estate Society, vol. 15(1), pages 107-126.
  2. Du, Julan & Leung, Charles Ka Yui & Chu, Derek, 2013. "Return enhancing, cash-rich or simply empire-building? An empirical investigation of corporate real estate holdings," MPRA Paper 44253, University Library of Munich, Germany.
  3. Leung, Charles Ka Yui & Tang, Edward Chi Ho, 2013. "Speculating China economic growth through Hong Kong? Evidence from the stock market IPO and real estate markets," MPRA Paper 46346, University Library of Munich, Germany.

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