Government ownership and the cost of debt for Chinese listed corporations

Abstract

This study investigates the impact of government controlling ownership on the cost of debt of Chinese listed corporations. We find that corporations under government control have a lower cost of debt compared to corporations under private control, and that government ownership is most beneficial when firms exhibit financial distress, have high excess shareholder control, or operate in provinces with low institutional development. Our evidence that government ownership plays an important role in reducing Chinese firms' cost of debt may help explain why government involvement in business corporations remains prevalent in China after decades of economic reform.