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GDP Manipulation, Cost of Equity, and Firm Performance

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  • Guilong Cai
  • Xiaoxia Li
  • Danglun Luo
  • Zhenyang (David) Tang

Abstract

We use satellite night light data to estimate the extent of gross domestic product (GDP) manipulation in China and investigate the impact of such manipulation on local firms. Firms located in provinces with higher levels of GDP manipulation experience a higher cost of equity, lower investment efficiency, and weaker profit growth. Using a difference‐in‐difference test, we show that the cost of equity decreases and firm performance improves following unexpected turnovers of top government officials, which significantly reduces GDP manipulation. Additionally, our findings suggest that local firms may collude with government officials in costly data manipulation. We show that firms in provinces with higher levels of GDP manipulation receive more government subsidies, and that firms with lower pay–performance sensitivity (PPS) are more likely to collude.

Suggested Citation

  • Guilong Cai & Xiaoxia Li & Danglun Luo & Zhenyang (David) Tang, 2025. "GDP Manipulation, Cost of Equity, and Firm Performance," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 52(4), pages 1868-1889, August.
    • Handle: RePEc:bla:jbfnac:v:52:y:2025:i:4:p:1868-1889
    DOI: 10.1111/jbfa.12870
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