The Empirical Study On Local Government Subsidy Of Listed Companies

Government subsidies, as the most direct means of a "helping hand" for local listed companies, reflect the important role that local government plays in the transition economies. The quality of local companies may affect the image of regional economic environment, and even the performance of government officials. On the other hand, what the local governments need is "face" and maintaining the good image of the regional economic environment, so it was often necessary for the government to give financial care for local companies. Although after 2001, the SFC issued some documents to limit listed companies froming using fiscal policy for earnings management, hence increase the difficulty of helping listed companies to receive placement by government subsidies. However, the "Shell Resources" of listed companies have great value. Thus when the local listed companies plunge themselves into crisis of delisting, the relevant stakeholders, including local government and major shareholders, will all utilize their resources to help the earnings management of listed companies.In 2004, the Shanghai and Shenzhen Stock Exchange revised the "Stock Listing Rules" again. The risk of termination of special treatment shall be suggested on the listed companies suffering form last two years of losses and possible bankruptcy, which means delisting risk alerts (Labeled "*ST" word ahead of stock abbreviation). Also provides,*ST can turn to be ST (other special treatment) as long as the companies can stop loss in the third year. But to get rid of ST, the companies have no choice but relying on regular income. In other words, from the*ST to ST, it can be made as long as there is a profit, no matter which kind of means it takes. Because of these special exit systems, the loss companies have received a strong subjective need for government subsidies, and local governments also have a strong motivation to help their loss-stoping.In addition, the U.S. subprime mortgage crisis since 2007 began to rapidly evolve into global financial crisis; hence governments have introduced various rescue plans and economic policies to keep their economy through the crisis. In order to stimulate domestic demand, China's government proposed the "4 trillion"economic stimulus plan and industrial revitalization plan, while the local governments'budget total over 18 trillion. Generally speaking, the central government is only responsible for the issue of fiscal policy. The direct control of enterprises and the specific implementation of the policies go to local governments in charge. So, in this context, researching the local government intervention decision-making towards listed companies, especially on the direct motivation of government subsidies, has a strong practical significance.For the companies with poor and unstable performance, local governments usually tend to use government subsidies approach. The resources government control are limited, so selective subsidies aiming to achieve maximum effectiveness of the limited financial capacity has become an important decision-making consideration when governments grant subsidies for enterprises. Based on certain economic theoretical analysis, this article focus on government subsidies'motivation of helping listed companies with loss-stoping and earnings management, provide more evidence for the study of earnings management behavior, as well provide some tentative suggestions for further improvement of relative regulatory and system.Specifically, the paper's main contents include:The first part (Chapter I& II):The main overview of study on the local government subsidies and listed companies loss-stoping, including the reality of the subject background, purpose and meaning, present the study method, structure and features. Following that is the review and comments on the research results and status at home and abroad, which are related to government subsidies in recent years.The second part (Chapter III):the theoretical basis, institutional foundation, motivation, and pros& cons of government subsidies, are described and analyzed, as for the theoretical groundwork for the back of the empirical analysis later. On the other hand, this chapter gives an introduction on the institutional backnowledge related to government subsidies.The third part (Chapter IV):The chapter mainly lays the root for the following issues, mainly use the decision-making model as the basis. Focusing on the loss-stoping motivation of government subsidies, this part derives the effectiveness for both sides during subsidy decision-making, from different angles. Through the analysis of the effectiveness of different matrices, observe the decision-making behavior to arrive at the main research hypothesis.The fourth part (Chapter V):First is the general introduction about the empirical model and selections of relevant variables, followed by a brief description of the sample selection process, data sources and empirical analysis period. Second, give the description of the sample data analysis, respectively from the overall sample, industry and other aspects of the data on certain characteristics. Then, use multipled regressions to empirically analysize the relationship between government subsidies and the loss listed companies. Finally, the related robustness tests, such as sub-annual, variable substitution and sub-sample regression analysis of multiple levels, better support the hypothesis of this study.The fifth part (Chapter VI):The chapter is about conclusions, generalizing main points of view, abstracting main innovations, introducing main restrictions. Bring out policies suggestions and the prospect of further study at last.The innovations of this thesis lay in the following points:First, this paper gives a more intuitive decision analysis theory, using decision theory and utility of matrix, so it can more clearly show the government and enterprises in different stages of decision-making between the utility and state, it can also provide a theoretical basis for the empirical test that local governments are motivated to help listed companies with loss-stoping, by giving them subsidies.Secondly, use the relevant data in a longer period of listed companies in China (2002-2006), fully utilize multipled regression methods, including descriptive statistics, multiple regression analysis and regression by year, in order to better explain the motivation of government subsidies and related effects in-depth, and the role of local governments in the transition economies. At present, related researches on government subsidies did not form consistent conclusions, so this study can provided more empirical evidence for the study on subsidies motivation.Again, this paper focuses on analysis of government subsidies to help companies realize losses and earnings management motivation, hoping to provide more evidence for the study of earnings management of listed companies. Finally, the research methods is of variety, comprehensive use of a preliminary descriptive analysis, regression model analysis, all these services for the comprehensive study of government subsidies motivation and intensity of listed companies in the role of losses. Some of which use multiple regression of regression model, from different angles test and support the hypotheses and conclusions.Supported by the theoritical analysis and the empirical tests based data of listed companies, the specific conclusions are as follows:First, to some the degree, the extent of the companies'losses will affect the decision-making of government subsidies, thus affecting the intensity distribution of subsidies. For the companies with heavy losses, which means even coupled with government subsidies the company is still in loss, the government subsidies can only play a reduced role of the degree, but cannot form an effective support for companies. What's more, the utility that local governments received from the process is small. So the government subsidies to loss-making enterprises are less.Second, for the companies whose loss can be easily stopped through government subsidies, local governments will more probably use subsidies and other means of financial support to help companies remaining their profitable image, and the intensity of subsidies will become larger.,Third, for the previous year in terms of loss-making companies, whether loss can be stopped within the second year is very important. In this case, if the actual daily operation of their own conditions is sufficient to ensure the realization of profits, at the same time loss of business can be easily reversed through government subsidies, and then the government will give these companies a helping hand, accordingly the intensity of subsidies will be greater.Fourth, the strongger the motivation of listed companies to avoid consecutive losses, the greater the intensity of government subsidies are. The local governments play an important role with helping local listed companies on the shell resources, thus become a vital external means for the earnings management of listed companies.