Abstract:

Using a sample of A-share listed firms in China for the period 2007—2014，this paper investigates the relationship between government subsidy and stock price crash risk from the perspective of rent-seeking,so as to provide new empirical evidence to clarify the economic consequences of fiscal subsidies.We find that government subsidy is positively associated with stock price crash risk. Results show that the impact of government subsidy is more pronounced in firms located in regions with low institutional environment and industry supported by government industrial policy.The further analyses indicate that rent-seeking do affect this positive realtionship. According to the rent-seeking theory, the executives can “disguise” the accounting performance and hide bad news of firm by the government subsidy,Our paper contributes to the growing literature on internal control and tunneling．It also offers useful implications to government that are seeking to evaluate the impact of government subsidy policy and promote the capital market in China.