Monday, December 7th
Haosen Ge (Princeton), “Curses or Blessings: How Low Asset Mobility Helps Foreign Firms Gain Government Support”
Abstract: Low asset mobility is often seen as undermining the bargaining power of investors. This article advances an alternative view that emphasizes the positive effects of low asset mobility. I argue that governments prefer foreign firms with immobile assets because their commitment to stay is always more credible. I present a formal model to illustrate three crucial theoretical mechanisms: 1) the inverse credible commitment problem, 2) political concerns associated with firm performance, and 3) the intensity of competition for investments. I substantiate the theoretical predictions using data from China. Leveraging a policy change in enterprise income taxes in 2008, I use a difference in differences design to show that foreign firms with lower asset mobility are less likely to become targets of local governments’ predatory behaviors.