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Decentralization And Firm Investment: Evidence From China, Xiaofei Pan, Yiping Wu, Huihang Wu

Faculty of Business - Papers (Archive)

Taking advantage of decentralization reform that enlarges the authority of county government in China, we construct a quasi-experiment. Using a large sample of Chinese firms, we show that after the implementation of decentralization reform, firms located in decentralized counties experienced a significant increase in investment expenditure compared with other firms. We also find that after the decentralization reform, state owned enterprises (SOEs) experienced greater increase in investment expenditure on average compared with non-SOEs, and that, within non-SOEs, collective firms have an even larger increase in investments, followed by foreign firms and private firms. Further analysis shows that the influence of …