Market segmentation and distribution of non-local subsidiaries

CAO Chunfang1 ZHOU Dawei1 WU Chengcheng1 ZHANG Tingting1

(1.School of Accounting, Southwest University of Finance and Economics)

【Abstract】This paper studies the impact of market segmentation on the distribution and effect of firms’ non-local subsidiaries and explores which role (disinterested government, supporting hand or grabbing hand) the government plays behind market segmentation. It is found that market segmentation leads to fewer non-local subsidiaries of state-owned companies than those of private companies. This conclusion is still valid when samples of parent firms, subsidiaries, and newly established subsidiaries are adopted and various robustness tests are conducted. Further analysis of the effect of distribution of subsidiaries reveals that market segmentation reduces the corporate value of local state-owned companies, but increases the over-investment of these companies; such an effect weakens when local state-owned enterprises increase their non-local subsidiaries; this effect does not exist among private enterprises. These results show that market segmentation primarily functions like a “grabbing hand.” Although non-local subsidiaries of local state-owned companies can escape from this “grabbing hand” to some extent, since market segmentation enhances the government’s power in resource allocation, the establishment of non-local subsidiaries by state-owned companies faces severer restrictions. This paper expands and enriches the research on the government’s hand and its findings help to understand the motivation and effects of the subsidiaries’ distribution.

【Keywords】 market segmentation; disinterested government; supporting hand; grabbing hand; distribution of non-local subsidiaries;

【DOI】

【Funds】 Youth Fund Project of National Natural Science Fund of China(71302181) Youth Fund Project of Ministry of Education of China, Humanities and Social Sciences Research on the Western and Frontier District(13XJC630001) Supported by the Fundamental Research Funds for the Central Universities(JBK150120)

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(Translated by Fanyi 2)

    Footnote

    [1]. 1 Although some literature suggests that local governments will prevent foreign subsidiaries under vicious competition (Xia et al., 2011), under limited economic development at this stage, governments still need more enterprises to develop the economy. And compared with the possible transfer of profits, the government income from employment, GDP and tax revenue are more important. For many years, the positive investment of local government in the country also illustrates this point. [^Back]

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This Article

ISSN:1002-5502

CN: 11-1235/F

Vol , No. 09, Pages 92-103+169+187-188

September 2015

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Article Outline

Abstract

  • 1 Introduction
  • 2 Literature review
  • 3 Theoretical analysis and research hypotheses
  • 4 Research design
  • 5 Regression results and analysis
  • 6 Conclusion
  • Appendix A: market segmentation metrics
  • Appendix B: calculation of enterprise’s over-investment
  • Footnote

    References