Institutions,Financial Development,and Corporate Investment: Evidence from an Implied Return on Capital in China
This paper presents a new approach to infer return on capital from firms capital expenditures,and then examines how institutions and financial development affect this implied return on capital. We apply the Generalized Method of Moments (GMM) estimator derived from a structural investment model to a large sample of Chinese industrial firms in China. Based on the estimated structural parameters,we compute the stochastic discount rate perceived by the managers to decide investment spending. We identify robust evidence that this return on capital measure is a function of variables capturing institutions and financial development. The results from our benchmark estimation show that return on capital for a non-state firm is more than 10 percentage points higher than that of an otherwise similar state firm. We document evidence that regions with better institutions and a market-prone financial system have more e_cient non-state sectors. Our estimates show that redirecting the capital from less e_cient state sector to more e_cient private sectors can unleash a 4.5％ GDP growth in China every year,and the deadweight loss due to capital mis-allocation is about 8％ of Chinas GDP.
institutions and financial development implied return on capital investment Euler equation model Chinese economy
Qiao Liu Alan Siu
School of Economics and Finance,University of Hong Kong,Hong Kong.Alan Siu School of Economics and Finance,University of Hong Kong,Pokfulam,Hong Kong
国际会议
成都
英文
2007-07-09（万方平台首次上网日期，不代表论文的发表时间）