Cost of government and firm value

Michael Firth; Stephen X. Gong; Liwei Shan

doi:10.1016/j.jcorpfin.2013.01.008

Cost of government and firm value

Michael Firth^*, Stephen X. Gong, Liwei Shan

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

35 Citations (Scopus)

Abstract

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.

Original language	English
Pages (from-to)	136-152
Number of pages	17
Journal	Journal of Corporate Finance
Volume	21
Issue number	1
DOIs	https://doi.org/10.1016/j.jcorpfin.2013.01.008
Publication status	Published - Jun 2013
Externally published	Yes

Keywords

Cost of government
Efficiency
Firm value
Grabbing hand
Political economy
Productivity

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10.1016/j.jcorpfin.2013.01.008

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title = "Cost of government and firm value",

abstract = "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.",

keywords = "Cost of government, Efficiency, Firm value, Grabbing hand, Political economy, Productivity",

author = "Michael Firth and Gong, {Stephen X.} and Liwei Shan",

note = "Funding Information: We thank the anonymous reviewer and the editor, Jeffry Netter, for helpful comments and suggestions on this paper. Firth acknowledges support from a grant from the Research Grants Council of the HKSAR ( LU340610 ). Gong acknowledges support from a grant from the Research Grants Council of the HKSAR ( PolyU 5427/09H ).",

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AU - Gong, Stephen X.

AU - Shan, Liwei

N1 - Funding Information: We thank the anonymous reviewer and the editor, Jeffry Netter, for helpful comments and suggestions on this paper. Firth acknowledges support from a grant from the Research Grants Council of the HKSAR ( LU340610 ). Gong acknowledges support from a grant from the Research Grants Council of the HKSAR ( PolyU 5427/09H ).

PY - 2013/6

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N2 - 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.

AB - 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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KW - Efficiency

KW - Firm value

KW - Grabbing hand

KW - Political economy

KW - Productivity

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Cost of government and firm value

Abstract

Keywords

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