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Cost of government and firm value

  • Firth, Michael
  • Gong, Stephen X.
  • Shan, Liwei
Registered author(s):

    Do high expenditures incurred in running the government benefit or hurt firms? Using Chinese data between 1999 and 2006, we find that higher administrative expenditures in provincial governments are associated with lower firm value, lower stock and financial performance, and lower labor productivity. Local governments that spend more on public administration tend to collect more fees from companies and spend less on social welfare and infrastructures. Our evidence is consistent with the “grabbing hand” hypothesis and has important policy implications.

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    Article provided by Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 21 (2013)
    Issue (Month): C ()
    Pages: 136-152

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    Handle: RePEc:eee:corfin:v:21:y:2013:i:c:p:136-152
    Contact details of provider: Web page: http://www.elsevier.com/locate/jcorpfin

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