The Fair Competition Review System and firm investment efficiency: evidence from China

Abstract The Fair Competition Review System (FCRS) is an ex-ante competition-policy arrangement designed to curb administrative monopolies and local protectionism. Using 30,353 firm-year observations for Chinese A-share listed firms from 2012 to 2023, this study treats the nationwide implementation of the FCRS as a quasi-natural experiment and applies a difference-in-differences design. The results show that the FCRS significantly reduces inefficient investment, including both overinvestment and underinvestment. Additional analyses are consistent with three resource-allocation pathways: greater mobility of innovation factors, tighter constraints on excessive government subsidies, and weaker administratively driven credit expansion. Subgroup estimates are statistically significant for non-state-owned firms, manufacturing firms, and firms located in regions with more stringent implementation arrangements. The results remain robust across alternative specifications. These findings broaden the evidence on the microeconomic consequences of competition policy and show that ex ante competition review can improve firm-level capital allocation. They also offer policy implications for strengthening implementation safeguards and advancing the construction of a unified national market.