Skip to main content

Research Repository

Advanced Search

Does China overinvest ? evidence from a panel of Chinese firms

Ding, Sai; Guariglia, Alessandra; Knight, John

Does China overinvest ? evidence from a panel of Chinese firms Thumbnail


Authors

Sai Ding

Alessandra Guariglia

John Knight



Abstract

This paper addresses the hotly-debated question: do Chinese firms overinvest? A firm-level dataset of 100,000 firms over the period of 2000-07 is employed for this purpose. We initially calculatemeasures of investment efficiency, which is typically negatively associated with overinvestment. Despite wide disparities across various ownership groups, industries and regions, we find thatcorporate investment in China has become increasingly efficient over time. However, based on directmeasures of overinvestment that we subsequently calculate, we find evidence of overinvestment forall types of firms, even in the most efficient and most profitable private sector. We find that the freecash flow hypothesis provides a good explanation for China‟s overinvestment, especially for theprivate sector, while in the state sector, overinvestment is attributable to the poor screening andmonitoring of enterprises by banks

Citation

Ding, S., Guariglia, A., & Knight, J. (2010). Does China overinvest ? evidence from a panel of Chinese firms

Publication Date Jan 1, 2010
Deposit Date Dec 7, 2012
Publicly Available Date Dec 7, 2012
Series Title Durham University Business School Economics Finance Accounting Working Papers
Keywords Overinvestment, Investment efficiency, Free cash flow, Debt, China. JEL classifcation: G31 O16 O53.
Public URL https://durham-repository.worktribe.com/output/1699640
Publisher URL http://www.dur.ac.uk/business/faculty/working-papers/

Files




You might also like



Downloadable Citations