GDP Competition and Investment Allocation: Evidence from China

64 Pages Posted: 22 Nov 2017

See all articles by Qiang Liu

Qiang Liu

Chongqing University, School of Economy and Business Administration

Ying Hao

Beijing Normal University (BNU)

Jing Lu

Chongqing University - School of Economics and Business Administration

Yong Du

Southwest University

Date Written: November 20, 2017

Abstract

This study examines how macroeconomic performance competition is related to the investment allocation at firm level. We use different GDP competitions as proxies of dynamic macroeconomic condition. We find that the effect of GDP competition on fixed assets investment is significantly positive. Further, we find that adjacent-wide GDP competition is associated with more M&As and nationwide GDP competition is associated with less R&D investment in the high group of fixed assets investment. We also show that GDP competition contributes to increase overinvestment and lower underinvestment, and the GDP competition is more likely to affect the investment allocations of SOEs (State Owned Enterprises). Especially, our analyses find that the probability of promotion is lower for those provincial leaders driving firms to take more M&As to promote economic growth than investing heavily in fixed assets. We use alternative proxies to measure GDP competition and find similar results that support our inference. Our findings support the notion that GDP competition of governments distorts investment behavior and contributes to discovering and elucidating investment problems and dilemma faced by emerging economy.

Suggested Citation

Liu, Qiang and Hao, Ying and Lu, Jing and Du, Yong, GDP Competition and Investment Allocation: Evidence from China (November 20, 2017). Available at SSRN: https://ssrn.com/abstract=3074290 or http://dx.doi.org/10.2139/ssrn.3074290

Qiang Liu

Chongqing University, School of Economy and Business Administration

No.174 Shazhengjie
Shapingba
Chongqing, Chongqing
China

Ying Hao (Contact Author)

Beijing Normal University (BNU) ( email )

19 Xinjiekou Outer St
Haidian District
Beijing, Beijing 100875
China

Jing Lu

Chongqing University - School of Economics and Business Administration ( email )

Shapingba
Chongqing, 400030
China

Yong Du

Southwest University ( email )

Chongqing, Chongqing 400715
China

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