Investment Efficiency Puzzle: Financial Constraint Hypothesis and Monetary Policy Shock
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| Title | Investment Efficiency Puzzle: Financial Constraint Hypothesis and Monetary Policy Shock
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| Author | Yu Kun，Li Zhiguo，Zhang Xiaorong and Xu Jiangang |
| Organization | School of Management, Fudan University |
| Email | yukunkevin@yahoo.cn |
| Key Words | Investment Efficiency; Ownership; Financial Constraint; Monetary Policy Shock. |
| Abstract | Based on samples in comparatively earlier periods, existing literature indicates a low efficiency with investment of state-owned enterprises (SOE), which has been characterized as a typical fact given the long-term phenomenon of overinvestment in China. However, using the same measurement as before, this paper finds a puzzle that the investment efficiency of non-SOEs is significantly lower than SOEs in recent years. As an explanation, we propose the financial constraint hypothesis and show that the gap between investment efficiency of non-SOES and SOEs is larger in industries with higher external financial dependence. Further, this gap becomes even larger when the monetary policy is tight and smaller when it is expansionary. The results demonstrate that the monetary policy shocks in recent years deteriorate the financial constraint problems facing non-SOEs. The SOEs get subsidy through financial system, crowding out the credit resources of non-SOEs, which lead to a sharp decline in investment efficiency of non-SOEs. |
| Serial Number | WP429 |
| Time | 2013-02-21 |
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