Policy incentives, ownership effects, and firm productivity—Evidence from China’s Agricultural Leading Firms Program

Abstract

This study explores the impact of the Agricultural Leading Firms Program (ALFP) on the productivity of China’s agro-processing firms utilizing firm-level data from 1998–2013. The propensity score matching difference-in-differences method is used to control for endogeneity. We find that ALFP’s implementation promotes the productivity of agro-processing firms. However, this productivity enhancement occurs only in non-state-owned enterprises (non-SOEs); the productivity of SOEs is not affected. Regarding the underlying mechanisms, studies indicate that ALFP’s policy incentives for SOEs are mainly in the form of credit support and for non-SOEs as tax incentives and subsidies. Moreover, although policy incentives promote research and development expenditures by both SOEs and non-SOEs, credit support cannot alleviate the overinvestment of SOEs, while tax incentives and subsidies actually improve the investment efficiency of non-SOEs; this may cause the heterogeneous effects by ownership.