Title

Cost of government and firm value

Document Type

Journal article

Source Publication

Journal of Corporate Finance

Publication Date

6-1-2013

Volume

21

First Page

136

Last Page

152

Publisher

Elsevier BV

Keywords

Cost of government; Firm value; Efficiency; Productivity; Grabbing hand; Political economy

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.

DOI

10.1016/j.jcorpfin.2013.01.008

Print ISSN

09291199

E-ISSN

18726313

Funding Information

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).

Publisher Statement

Copyright © 2013 Published by Elsevier B.V.

Full-text Version

Publisher’s Version

Language

English

Recommended Citation

Firth, M., Gong,S. X., & Shan, L. (2013). Cost of government and firm value. Journal of Corporate Finance, 21, 136-152. doi: 10.1016/j.jcorpfin.2013.01.008

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