Policy uncertainty and firm-level investment: evidence from public-private partnership market in China

ABSTRACT

This paper focuses on the subfield of Public–Private Partnership (PPP), and explores the relationship between policy uncertainty and firm-level investment. Based on the analysis of 905 central-level documents, one novel contribution of this paper is to construct an index of PPP policy uncertainty. We find evidence supporting that the gambling between central government departments is the main cause of policy uncertainty, which further leads to less investment by firms. Compared with other traditional indexes, the construction based upon policy text sheds light on risk management.

KEYWORDS:

• Public–Private Partnership
• policy uncertainty
• firm investment
• policy documents

JEL CLASSIFICATION:

• D80
• E61
• G18

Disclosure statement

No potential conflict of interest was reported by the authors.

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

¹ Luo and Zhang (2020) document cycles in firm research and development investment corresponding with the timing of local political turnover in China.

² For example, the Notice on Regulating the Management of the Project Database of Comprehensive Information Platform of the Government and Social Capital Cooperation (PPP) (promulgated by the Ministry of Finance in 2017) regulates a centralised cleanup of the PPP project library and strict standards for new entry projects. This results in a fall in the number of bids in 2018.