Finance Research Seminar: "Chasing Subsidies, Missing Effort: Disclosure Quality and Resource Misallocation in Chinese Firms"
The Finance research group welcomes Dr Zhonghao Jiang.
He will present his work, entitled "Chasing Subsidies, Missing Effort: Disclosure Quality and Resource Misallocation in Chinese Firms."
About the speaker
Zhonghao is a Lecturer in Fintech at Newcastle University Business School. He joined Newcastle University in August 2024. His primary research interests include corporate finance and Fintech.
Research abstract
Can increased competition for public resources deteriorate firms’ disclosure quality, thereby leading to the allocation of resources to undeserving firms?
Using the departure of top provincial officials during China’s anti-corruption campaign as a shock to the competitive allocation of government subsidies, we find that firms are more inclined to excessively emphasize their investment in digitalization without making corresponding practical efforts (a phenomenon we term “Digitalwashing”). This effect is more pronounced among financially constrained firms, with weaker monitoring mechanisms and less political connection. Digital-washing enables firms to acquire additional government resources and attract more government customers despite showing no better performance than their peers.
Our evidence supports legitimacy theory, indicating that firms enhance their public image through digitalization disclosures without substantively changing their underlying activities. This behavior distorts the allocation of public resources, leading to no corresponding improvement in firm performance.