Research on the Impact of Government Subsidies on the Investment Efficiency of Enterprises

In the context of governmental involvement in market operations, subsidies represent a crucial instrument for macroeconomic regulation and the reallocation of societal resources. Given the significance of macroeconomic policies on micro-level enterprises as well as corporate governance structures, this paper tries to explicate the specific association between governmental financial support and the amplification of firm value. As a matter of fact, enterprise investment efficiency stands as a salient metric reflecting the intrinsic value of an enterprise, and during the epoch of economic metamorphosis in China, a prevalent condition of suboptimal investment, encompassing both under-investment and over-investment, is observable among publicly-listed corporations. Considering that existing studies have largely overlooked the intricacies of the relationship between government financial subsidies and corporate investment efficiency within the unique institutional milieu of China, this research employs a comprehensive empirical examination of non-financial firms listed on the Shanghai, Shenzhen and Beijing A-share markets over the interval spanning from 2010 to 2021 to address this gap. The findings reveal that government subsidies do affect corporate investment effectiveness, with varying degrees of effectuation observed across different types of companies. Specifically, government subsidies possess the capacity to mitigate instances of corporate under-investment, while such financial incentives may also have the potential to intensify problems associated with corporate over-investment. Notably, these effects are more pronounced within the subset of non-state-owned enterprises.