The impact of social trust and state ownership on investment efficiency of Chinese firms

This study examines the impact of social trust, the state ownership and their joint effects on investment efficiency in China using 6885 firm-year observations from 2010 to 2018. We find that higher social trust is associated with higher investment efficiency, and the state ownership leads to lower investment efficiency. The SOEs exhibit higher under and over-investment problems relative to non-SOEs. The lower investment efficiency of SOEs is further amplified in provinces with higher social trust. These findings are consistent with agency and information asymmetry explanations, and robust to endogeneity and alternative measurement of variables.