Abstract
We examine the effect of subsidies on the real activity of firms using a panel of Chinese listed firms from 2008 to 2013. Employing the Propensity Score Matching method (PSM) and Differences in Differences method (DID), the study showed that government subsidies were not only highly effective at promoting investment and job creation, but they enhanced short-term productive efficiency of firms. Meanwhile, we find that there was significant cross-sectional variation in firms’ response to subsidies, and non-state-owned firms (non-SOEs) benefited more from subsidies than state-owned enterprises (SOEs) in the short term.
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