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The dilemma of winners: market power, industry competition and subsidy efficiency

Jialin Song (School of Economics and Management, Tongji University, Shanghai, China)
Yiyi Su (School of Economics and Management, Tongji University, Shanghai, China)
Taoyong Su (School of Economics and Management, Tongji University, Shanghai, China)
Luyu Wang (School of Finance, Shanghai University of Finance and Economics, Shanghai, China)

Chinese Management Studies

ISSN: 1750-614X

Article publication date: 11 October 2021

Issue publication date: 25 November 2022

395

Abstract

Purpose

The purpose of this paper is, from a resource accumulation and resource allocation perspective, to examine the variant effects of government subsidies among firms with varying levels of market power and to test how industry competition moderates the relationship between market power and allocative efficiency of government subsidies.

Design/methodology/approach

This study explores the relationship between government subsidies and firm performance from a resource-based view. The authors study the moderating role of market power and three-way interaction between subsidy, market power and industry competition on firm performance. The authors test their hypotheses using a sample of Chinese A-share manufacturing firms from 2006–2019. The authors apply firm-level panel data regressions and conduct a series of robustness tests. The marginal effect of market power and industry competition is explored via three-way moderator effect models.

Findings

This study finds that government subsidies are negatively related to firm performance. Market power, on average, strengthens the negative effect of government subsidies on performance, but such a reinforcement effect is neutralized when industry competition is intense. Government subsidies are least efficiently used when firms have market power and industry competition is low. In addition, the authors use different forms of firm performance and a various of robustness tests to verify their assumptions.

Originality/value

This paper contributes to the literature as follows. First, the authors look into subsidy–performance problem from the perspective of the resource-based view and contribute to explaining and mitigating the divergence of current findings on the subsidy–performance relationship. Second, the authors introduce market power and industry competition as moderators to study how resource allocative efficiency affects the subsidy–performance relationship. Third, the authors propose that managerial incentives have played an important role in the allocation of government subsidies, which enriches management practices.

Keywords

Citation

Song, J., Su, Y., Su, T. and Wang, L. (2022), "The dilemma of winners: market power, industry competition and subsidy efficiency", Chinese Management Studies, Vol. 16 No. 5, pp. 1161-1181. https://doi.org/10.1108/CMS-10-2020-0457

Publisher

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Emerald Publishing Limited

Copyright © 2021, Emerald Publishing Limited

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