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The Financial Eco‐Environment and Capital Allocation Efficiency: Evidence From China's Provinces

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  • Shaokang Xu

Abstract

This paper investigates the impact of China's financial eco‐environment on capital allocation efficiency through both theoretical analysis and empirical research. The theoretical section reviews relevant literature and theories, proposing direct and indirect pathways—via technological innovation and foreign direct investment (FDI)—through which the financial eco‐environment influences capital allocation efficiency. The empirical section uses panel data from 30 Chinese provinces from 2000 to 2020. Employing the entropy method and data envelopment analysis (DEA), we measure the levels of the financial eco‐environment and capital allocation efficiency in China. Various econometric models, including fixed effects and System GMM, are utilized to assess the impact of the financial eco‐environment and its components on capital allocation efficiency. The findings reveal that (1) improvements in the financial eco‐environment significantly enhance capital allocation efficiency; (2) the impact of individual components of the financial eco‐environment on capital allocation efficiency varies, with government behavior, institutional and credit culture, and economic foundation ranked by their influence. Notably, government behavior has a negative correlation, whereas economic foundation and institutional and credit culture have positive correlations with capital allocation efficiency; (3) the financial eco‐environment indirectly affects capital allocation efficiency through technological innovation and FDI.

Suggested Citation

  • Shaokang Xu, 2026. "The Financial Eco‐Environment and Capital Allocation Efficiency: Evidence From China's Provinces," Bulletin of Economic Research, Wiley Blackwell, vol. 78(2), pages 458-478, April.
    • Handle: RePEc:bla:buecrs:v:78:y:2026:i:2:p:458-478
    DOI: 10.1111/boer.70031
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