Does China overinvest? Evidence from a panel of Chinese firms

Ding, S. , Knight, J. and Zhang, X. (2019) Does China overinvest? Evidence from a panel of Chinese firms. European Journal of Finance, 25(6), pp. 489-507. (doi: 10.1080/1351847X.2016.1211546)

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Abstract

This paper uses a dataset of more than 100,000 firms over the period of 2000–2007 to assess whether and why Chinese firms overinvest. We find that corporate investment is more efficient in the non-state sector. Within all ownership categories, we uncover evidence indicating a degree of overinvestment among firms that invest more than their industry median or more than their predicted optimal investment. The free cash flow hypothesis provides a good explanation for China’s overinvestment in the non-state sectors, whereas in the state sector, overinvestment is attributable to the poor screening and monitoring of enterprises by banks.

Item Type:Articles
Additional Information:The authors thank the ESRC for providing financial support for this research (RES-000-22-3140).
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Ding, Dr Sai
Authors: Ding, S., Knight, J., and Zhang, X.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:European Journal of Finance
Publisher:Taylor & Francis
ISSN:1351-847X
ISSN (Online):1466-4364
Published Online:03 August 2016
Copyright Holders:Copyright © 2016 The Authors
First Published:First published in European Journal of Finance 25(6): 489-507
Publisher Policy:Reproduced in accordance with the copyright policy of the publisher

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