Does media coverage help firms “lobby” for government subsidies? Evidence from China

  • Jin-hui LuoEmail author
  • Zeyue Huang
  • Ruichao Zhu


This study draws on the resource dependence theory to investigate the effect of media coverage on local governments’ subsidizing behavior. Using a sample of Chinese A-share listed firms spanning 2007–2012, we find that media coverage significantly increases both the likelihood and the amount of focal firms’ subsidies received from local governments. The positive relationship is found to be more pronounced for firms under special treatment (ST) status and for private firms. Further, we find that both positive and negative media coverage are positively associated with focus firms’ government subsidy receiving. Overall, our findings indicate that media coverage plays a “lobbying” role in helping firms particularly those vulnerable firms acquire subsidies from local governments. This study contributes to the resource dependence theory by suggesting that local governments are subject to public opinion evoked by media coverage, and also enriches the literature regarding the role of media coverage.


China Government subsidies Media coverage Private firms Resource dependence theory Special treatment (ST) 



We acknowledge financial support from the National Natural Science Foundation of China (Grant No. 71572160). We greatly thank for valuable comments and suggestions from the Senior Editor Prof. Kevin Zheng Zhou and two anonymous reviewers. All remaining errors are our own.


  1. Aharony, J., Lee, C. W. J., & Wong, T. J. 2000. Financial packaging of IPO firms in China. Journal of Accounting Research, 38(1): 103–126.Google Scholar
  2. Aiken, L. S., West, S. G., & Reno, R. R. 1991. Multiple regression: Testing and interpreting interactions: Sage.Google Scholar
  3. Allen, F., Qian, J., & Qian, M. 2005. Law, finance, and economic growth in China. Journal of Financial Economics, 77(1): 57–116.Google Scholar
  4. Alt, J. E., Carlsen, F., Heum, P., & Johansen, K. 2003. Asset specificity and the political behavior of firms: Lobbying for subsidies in Norway. International Organization, 53(1): 99–116.Google Scholar
  5. Anderson, T. W., & Rubin, H. 1949. Estimation of the parameters of a single equation in a complete system of stochastic equations. The Annals of Mathematical Statistics, 20(1): 46–63.Google Scholar
  6. Bai, C. E., & Wang, Y. 1998. Bureaucratic control and the soft budget constraint. Journal of Comparative Economics, 26(1): 41–61.Google Scholar
  7. Bar-Yosef, S., & Landskroner, Y. 1988. Government subsidies and the value of the firm. Managerial and Decision Economics, 9(1): 41–47.Google Scholar
  8. Baron, D. P. 2005. Competing for the public through the news media. Journal of Economics & Management Strategy, 14(2): 339–376.Google Scholar
  9. Besley, T., & Burgess, R. 2002. The political economy of government responsiveness: Theory and evidence from India. The Quarterly Journal of Economics, 117(4): 1415–1451.Google Scholar
  10. Besley, T., & Prat, A. 2006. Handcuffs for the grabbing hand? Media capture and government accountability. American Economic Review, 96(3): 720–736.Google Scholar
  11. Blanchard, O., & Shleifer, A. 2001. Federalism with and without political centralization: China versus Russia. IMF Staff Papers, 48(1): 171–179.Google Scholar
  12. Blau, B. M., Brough, T. J., & Thomas, D. W. 2013. Corporate lobbying, political connections, and the bailout of banks. Journal of Banking & Finance, 37(8): 3007–3017.Google Scholar
  13. Boycko, M., Shleifer, A., & Vishny, R. W. 1996. A theory of privatisation. The Economic Journal, 106(435): 309.Google Scholar
  14. Bushee, B. J., Core, J. E., Guay, W., & Hamm, S. J. W. 2010. The role of the business press as an information intermediary. Journal of Accounting Research, 48(1): 1–19.Google Scholar
  15. Chen, C. H., Mai, C. C., & Yu, H. C. 2006. The effect of export tax rebates on export performance: Theory and evidence from China. China Economic Review, 17(2): 226–235.Google Scholar
  16. Chen, X., Lee, C. W. J., & Li, J. 2008. Government assisted earnings management in China. Journal of Accounting and Public Policy, 27(3): 262–274.Google Scholar
  17. Chu, A. G. H., Du, X., & Jiang, G. 2011. Buy, lie, or die: An investigation of Chinese ST firms’ voluntary interim audit motive and auditor independence. Journal of Business Ethics, 102(1): 135–153.Google Scholar
  18. Claessens, S., Feijen, E., & Laeven, L. 2008. Political connections and preferential access to finance: The role of campaign contributions. Journal of financial economics, 88(3): 554–580.Google Scholar
  19. Claro, S. 2006. Supporting inefficient firms with capital subsidies: China and Germany in the 1990s. Journal of Comparative Economics, 34(2): 377–401.Google Scholar
  20. Conyon, M. J., & He, L. 2011. Executive compensation and corporate governance in China. Journal of Corporate Finance, 17(4): 1158–1175.Google Scholar
  21. Cook, F. L., Tyler, T. R., Goetz, E. G., Gordon, M. T., Protess, D., Leff, D. R., & Molotch, H. L. 1983. Media and agenda setting: Effects on the public, interest group leaders, policy makers, and policy. The Public Opinion Quarterly, 47(1): 16–35.Google Scholar
  22. Cull, R., & Xu, L. C. 2005. Institutions, ownership, and finance: The determinants of profit reinvestment among Chinese firms. Journal of Financial Economics, 77(1): 117–146.Google Scholar
  23. Du, X., Chang, Y., Zeng, Q., Du, Y., & Pei, H. 2016. Corporate environmental responsibility (CER) weakness, media coverage, and corporate philanthropy: Evidence from China. Asia Pacific Journal of Management, 33(2): 551–581.Google Scholar
  24. Du, X., & Luo, J.-h. 2016. Political connections, home formal institutions, and internationalization: Evidence from China. Management and Organiation Review, 12(1): 103–133.Google Scholar
  25. Du, X., Pei, H., Du, Y., & Zeng, Q. 2015. Media coverage, family ownership, and corporate philanthropic giving: Evidence from China. Journal of Management & Organization, 22(2): 224–253.Google Scholar
  26. Dyck, I. J. A., & Zingales, L. 2002. The corporate governance role of the media. Ssrn Electronic Journal, 63(3): 1093–1135.Google Scholar
  27. Erbring, L., Goldenberg, E. N., & Miller, A. H. 1980. Front-page news and real-world cues: A new look at agenda-setting by the media. American Journal of Political Science, 24(1): 16–49.Google Scholar
  28. Faccio, M., Masulis, R. W., & McConnell, J. J. 2006. Political connections and corporate bailouts. Journal of Finance, 61(6): 2597–2635.Google Scholar
  29. Fan, G., Wang, X., & Zhu, H. 2011. NERI index of marketization of China’s provinces report. Beijing:National Economic Research Institute (in Chinese).Google Scholar
  30. Fang, L., & Peress, J. 2009. Media coverage and the cross-section of stock returns. Journal of Finance, 64(5): 2023–2052.Google Scholar
  31. Frye, T., & Shleifer, A. 1997. The invisible hand and the grabbing hand. American Economic Review, 87: 354–358.Google Scholar
  32. Girma, S., Gong, Y. D., Gorg, H., & Yu, Z. H. 2009. Can production subsidies explain China’s export performance? Evidence from firm-level data. Scandinavian Journal of Economics, 111(4): 863–891.Google Scholar
  33. Guggenberger, P., Kleibergen, F., Mavroeidis, S., & Chen, L. 2012. On the asymptotic sizes of subset Anderson–Rubin and Lagrange multiplier tests in linear instrumental variables regression. Econometrica, 80(6): 2649–2666.Google Scholar
  34. Hansen, L. P. 1982. Large sample properties of generalized method of moments estimators. Econometrica, 50(4): 1029–1054.Google Scholar
  35. Harris, R. I. 1991. The employment creation effects of factors subsidies: Some estimates for Northern Ireland manufacturing industry. Journal of Regional Science, 31(1): 49–64.Google Scholar
  36. He, G. 2016. Fiscal support and earnings management. International Journal of Accounting, 51(1): 57–84.Google Scholar
  37. Hillman, A. J. 2005. Politicians on the board of directors: Do connections affect the bottom line? Journal of Management, 31(3): 464–481.Google Scholar
  38. Hillman, A. J., & Hitt, M. 1999. Corporate political strategy formulation: A model of approach, participation, and strategy decisions. Academy of Management Review, 24(4): 825–842.Google Scholar
  39. Hillman, A. J., Withers, M. C., & Collins, B. J. 2009. Resource dependence theory: A review. Journal of Management, 35(6): 1404–1427.Google Scholar
  40. Jia, M., & Zhang, Z. 2015. News visibility and corporate philanthropic response: Evidence from privately owned Chinese firms following the Wenchuan earthquake. Journal of Business Ethics, 129(1): 93–114.Google Scholar
  41. Jia, M., Tong, L., Viswanath, P. V., & Zhang, Z. 2016. Word power: The impact of negative media coverage on disciplining corporate pollution. Journal of Business Ethics, 138(3): 437–458.Google Scholar
  42. Jiang, G., & Wang, H. 2008. Should earnings thresholds be used as delisting criteria in stock market? Journal of Accounting and Public Policy, 27(5): 409–419.Google Scholar
  43. Khwaja, A. I., & Mian, A. 2005. Do lenders favor politically connected firms? Rent provision in an emerging financial market. The Quarterly Journal of Economics, 120(4): 1371–1411.Google Scholar
  44. Kornai, J. 1986. The soft budget constraint. Kyklos, 39(1): 3–30.Google Scholar
  45. Langer, A. I., & Sagarzazu, I. 2017. Are all policy decisions equal? Explaining the variation in media coverage of the UK budget. The Policy Studies Journal, 45(2): 337–358.Google Scholar
  46. Lee, E., Walker, M., & Zeng, C. 2014. Do Chinese government subsidies affect firm value? Accounting Organizations & Society, 39(3): 149–169.Google Scholar
  47. Lee, E., Walker, M., & Zeng, C. 2017. Do chinese state subsidies affect voluntary corporate social responsibility disclosure? Journal of Accounting and Public Policy, 36(3): 179–200.Google Scholar
  48. Li, H., Meng, L., Wang, Q., & Zhou, L. A. 2008. Political connections, financing and firm performance: Evidence from Chinese private firms. Journal of Development Economics, 87(2): 283–299.Google Scholar
  49. Li, H., & Zhang, Y. 2007. The role of managers’ political networking and functional experience in new venture performance: Evidence from China’s transition economy. Strategic Management Journal, 28(8): 791–804.Google Scholar
  50. Li, H., & Zhou, L. A. 2005. Political turnover and economic performance: The incentive role of personnel control in China. Journal of Public Economics, 89(9–10): 1743–1762.Google Scholar
  51. Lim, C. Y., Wang, J., & Zeng, C. 2018. China's ‘mercantilist’ government subsidies, the cost of debt and firm performance. Journal of Banking & Finance, 86: 37–52.Google Scholar
  52. Luo, J.-h., Xiang, Y., & Zhu, R. 2017. Military top executives and corporate philanthropy: Evidence from China. Asia Pacific Journal of Managent, 34(3): 725–755.Google Scholar
  53. McCombs, M. E., & Shaw, D. L. 1972. The agenda-setting function of mass media. Public Opinion Quarterly, 36(2): 176–187.Google Scholar
  54. Moreira, M. J. 2003. A conditional likelihood ratio test for structural models. Econometrica, 71(4): 1027–1048.Google Scholar
  55. Oi, J. C. 1995. The role of the local state in China's transitional economy. The China Quarterly, 144: 1132–1149.Google Scholar
  56. Peng, M. W., Bruton, G. D., Stan, C. V., & Huang, Y. 2016. Theories of the (state-owned) firm. Asia Pacific Journal of Management, 33(2): 293–317.Google Scholar
  57. Petersen, M. A. 2009. Estimating standard errors in finance panel data sets: Comparing approaches. Review of Financial Studies, 22(1): 435–480.Google Scholar
  58. Pfeffer, J., & Salancik, G. R. 2003. The external control of organizations: A resource dependence perspective. Standford, CA:Standford University Press.Google Scholar
  59. Piotroski, J. D., Wong, T. J., & Zhang, T. 2015. Political incentives to suppress negative information: Evidence from chinese listed firms. Journal of Accounting Research, 53(2): 405–459.Google Scholar
  60. Ralston, D. A., Terpstra-Tong, J., Terpstra, R. H., Wang, X., & Egri, C. 2006. Today's state-owned enterprises of China: Are they dying dinosaurs or dynamic dynamos? Strategic Management Journal, 27(9): 825–843.Google Scholar
  61. Rogers, E., & Dearing, J. 1988. Agenda-setting research: Where has it been, where is it going? Communication Yearbook, 11: 555–594.Google Scholar
  62. Schwartz, G., & Clements, B. 1999. Government subsidies. Journal of Economic Surveys, 13(2): 119–148.Google Scholar
  63. Scott, W. R. 1987. The adolescence of institutional theory. Administrative Science Quarterly, 32(4): 493–511.Google Scholar
  64. Tang, Q., & Luo, D. 2007. The motivation and the effect of the government subsidy: Evidence from Chinese listed firms. Journal of Financial Research, 6: 149–163 (in Chinese).Google Scholar
  65. Tao, Q., Sun, Y., Zhu, Y., & Yang, X. 2017. Political connections and government subsidies: Evidence from financially distressed firms in China. Emerging Markets Finance and Trade, 53(8): 1854–1868.Google Scholar
  66. Tobin, J. 1958. Estimation of relationships for limited dependent variables. Econometrica, 26(1): 24–36.Google Scholar
  67. Wang, L. 2015. Protection or expropriation: Politically connected independent directors in China. Journal of Banking & Finance, 55: 92–106.Google Scholar
  68. Wang, X., & Wang, S. 2013. Chairman’s government background, excess employment and government subsidies: Evidence from Chinese local state-owned enterprises. China Journal of Accounting Research, 6(1): 51–74.Google Scholar
  69. White, H. 1980. A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica, 48(4): 817–838.Google Scholar
  70. Winter, J. P., & Eyal, C. H. 1981. Agenda setting for the civil right issue. The Public Opinion Quarterly, 45(3): 376–383.Google Scholar
  71. Wren, C., & Waterson, M. 1991. The direct employment effects of financial assistance to industry. Oxford Economic Papers, 43(1): 116–138.Google Scholar
  72. Wu, J., & Cheng, M. L. 2011. The impact of managerial political connections and quality on government subsidies: Evidence from Chinese listed firms. Chinese Management Studies, 5(2): 207–226.Google Scholar
  73. You, J., Zhang, B., & Zhagn, L. 2018. Who captures the power of the pen? Review of Financial Studies, 31(1): 43–96.Google Scholar
  74. Yu, M., Hui, Y., & Pan, H. 2010. Political connections, rent seeking, and the fiscal subsidy efficiency of local governments. Economic Research Journal, 3: 65–77 (in Chineses).Google Scholar
  75. Zhou, Z., & Zhou, J. 2010. Chinese IPO activity, pricing, and market cycles. Review of Quantitative Finance and Accounting, 34(4): 483–503.Google Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.School of ManagementXiamen UniversityXiamenPeople’s Republic of China
  2. 2.HKUST Business SchoolThe Hong Kong University of Science and TechnologyKowloonHong Kong

Personalised recommendations