School of Business

GDP Manipulation, Cost of Equity, and Firm Performance

Document Type

Article

Abstract

We use satellite night light data to estimate the extent of gross domestic product (GDP) manipulation in China and investigate the impact of such manipulation on local firms. Firms located in provinces with higher levels of GDP manipulation experience a higher cost of equity, lower investment efficiency, and weaker profit growth. Using a difference-in-difference test, we show that the cost of equity decreases and firm performance improves following unexpected turnovers of top government officials, which significantly reduces GDP manipulation. Additionally, our findings suggest that local firms may collude with government officials in costly data manipulation. We show that firms in provinces with higher levels of GDP manipulation receive more government subsidies, and that firms with lower pay–performance sensitivity (PPS) are more likely to collude. © 2025 John Wiley & Sons Ltd.

Publication Title

Journal of Business Finance and Accounting

Publication Date

2025

ISSN

0306-686X

DOI

10.1111/jbfa.12870

Keywords

cost of equity, economic growth, firm performance, gross domestic product (GDP) manipulation

Link to Full Text

Share

COinS