In this study, we investigate the effects of government subsidies and the globalization thereof on the short and long term financial outcomes of the Chinese firms listed on the Shanghai and Shenzhen stock exchanges from January 1, 2008 through December 31, 2018. We employed the fixed effect panel regression models in the study and main research results are as follows:
Firstly, the globalization of the Chinese firms have significant negative effects on their short term profitability. The negative effects are irrespective of whether the firms received government subsidies and are even more significant in case of the firms without government subsidies since it turns out that the effects last for longer than four years.
Secondly, the OFDI(Outward Foreign Direct Investment) of the Chinese firms has negative effects on their short term profitability for most firms without government subsidies.
Thirdly, the exportations of the Chinese firms have positive effects on their short term profitability. The effects are irrespective of whether the firms received government subsidies, which are also consistent with the results from previous studies.
Fourthly, the government subsidies for the exporting firms have positive effects on their profitability in the corresponding year only and it turns out that they have even negative effects for the next two years.
We focus on the effects of the specific subsidies for exporting firms in order to support their globalization and maybe with unfair supports by the Chinese government on their profitability. The government subsidies enhance the profitability of the exporting firms in the corresponding year but worsen them in the subsequent years, which reveals the side-effects of the government subsidies possibly causing moral hazards and harming the fair competitions of the firms concerned in the global markets.