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ABSTRACT
We exploit the competition policy in China to test whether product competition affects firm’s overcapacity. By introducing the shock of enacting of the Chinese Anti-Monopoly Law, our difference-in-differences estimation shows that the overcapacity of firms with larger market power has a significant decrease. The possible explanations are that the product competitions significantly increase after the monopoly activities and local protectionism are prohibited, which lead to the reduction of zombie firms, and the decline of firms’ bank loans and over-investment inefficiency. The effects are more pronounced to stated-owned firms, political connected firms, firms in cities with lower regional marketization and firms under industries with less competition. Overall, this study provides timely policy implications for central regulators concerned with the outcomes of the enforcement for the anti-monopoly policy and the solutions for the overcapacity problems.
Disclosure Statement
No potential conflict of interest was reported by the author(s).
Notes
1. The three intractable economic problems in China are government debt, real estate bubbles and excess-capacity problems.
2. The provinces affected by the Olympic Games include Beijing, Hebei, Inner Mongolia, Liaoning, Shanxi, and Tianjin.
3. The zombie firms refer to firms that would go bankrupt due to poor earnings but survive with external support from governments or financial sector.