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Gains from targeting? Government subsidies and firm performance in China
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DOI：10.1016/j.jcorpfin.2026.103010.png)
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Abstract
En 中文
We study whether targeted support tied to capital acquisition can relax financing frictions or merely subsidise firms that would have invested anyway. We examine this question in the context of China’s targeted capital import subsidy programme—the world’s largest of its kind—which combines fiscal rebates on eligible capital goods with preferential credit from a policy bank. Using manufacturing firm data matched to transaction-level trade records and the government subsidy catalogue, we exploit variation in firms’ pre-policy exposure in a difference-in-differences design. We find that a one-standard-deviation increase in exposure reduces borrowing costs by 0.04 percentage points and raises borrowing growth by 0.4 percentage points, consistent with improved access to external finance. These financial gains are accompanied by higher investment, stronger output and employment, and higher marginal revenue products of capital. The effects are strongest among financially constrained firms and non-state-owned enterprises, where financing frictions bind most tightly.
Keywords:
F13
F14
D22
Government subsidy
Credit allocation
Investment
Financial constraint
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