One-site reform of public service and corporate investment

Abstract

This study examines whether and how administrative efficiency affects investment efficiency. Taking one-site reform of public service with the establishment of the prefecture's administrative approval centers as an exogenous shock, we conduct a difference-in-differences approach to investigate the causal effects of the administrative approval on investment efficiency in the context of China. We find that the administrative approval reform improves firms’ investment efficiency. Furthermore, the improvement of administrative approval efficiency is mainly concentrated in under-investment firms. After administrative approval reform, under-investment firms are more active in investment activities than their counterparts. Heterogeneity analysis shows that the above effect is particularly pronounced in private firms, highly financial constrained firms, and firms locate in regions with high social trust.