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Entrusted investment in China: Firm characteristics and economic consequences

Author

Listed:
  • Yuan, Rongli
  • Xia, Shengjie
  • Li, Ruijing

Abstract

Using a large sample of China's listed firms from 2001 to 2018, we investigate the determinants and consequences of entrusted investment in China. We find that firms with more idle funds and weaker corporate governance are more likely to engage in entrusted investment (EI). We also find that the stock market reacts positively to entrusted investment announcements. Further, EI improves short-term firm performance but has no effect in the long run. One possible reason is that EI reduces corporate R&D investment, which may have a negative impact on long-term performance. Finally, we find that the positive association between EI and short-term firm performance becomes more significant for firms without overseas experienced executives and non-high-tech firms. This study enriches the literature on the EI and corporate finance, and the findings have important implications for regulators, listed firms, and investors.

Suggested Citation

  • Yuan, Rongli & Xia, Shengjie & Li, Ruijing, 2023. "Entrusted investment in China: Firm characteristics and economic consequences," International Review of Economics & Finance, Elsevier, vol. 88(C), pages 1186-1203.
    • Handle: RePEc:eee:reveco:v:88:y:2023:i:c:p:1186-1203
    DOI: 10.1016/j.iref.2023.07.082
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    References listed on IDEAS

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    1. Liang, Qi & Xu, Pisun & Jiraporn, Pornsit, 2013. "Board characteristics and Chinese bank performance," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2953-2968.
    2. Li, Donghui & Moshirian, Fariborz & Nguyen, Pascal & Tan, Li-Wen, 2007. "Managerial ownership and firm performance: Evidence from China's privatizations," Research in International Business and Finance, Elsevier, vol. 21(3), pages 396-413, September.
    3. Yuan, Rongli & Xiao, Jason Zezhong & Zou, Hong, 2008. "Mutual funds' ownership and firm performance: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1552-1565, August.
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    More about this item

    Keywords

    Entrusted investment; Market reaction; Firm performance; R&D investment;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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