Industrial Policies And The Firm's Systematic Risk

Generally,the firm bear relatively low systematic risk,while bear relatively high idiosyncratic risk,which is more conducive to stimulating the vitality and creativity of the firm,and also plays an important role in the healthy development of financial markets.In China's transitional economic environment,the government has conducted extensive and meticulous interventions in the firm's business activities through selective industrial support.The impact of industrial policies on systematic risk of the firm cannot be ignored.However,there are many documents discussing the economic consequences of industrial policies,but the existing literature has paid less attention to how industrial policies affect financial markets,and there is currently no literature to study the relationship between industrial policies and systematic risk of the firm.The main purpose of this article is to discuss whether industrial policies will have an important impact on the firm's systematic risks in China,and to explore whether there is a difference between state-owned firms and non-state-owned firms.To this end,based on the Capital Asset Pricing Model(CAPM),this paper uses the stock's ? coefficient to measure systematic risk,and conducts research on the Shanghai and Shenzhen A-share listed companies from January 2006 to December 2017.First,the article identifies the firms benefiting from relevant industrial policies using a dummy through textual mining in the Baidu news dataset.Next,introduces industrial policies indexes into the estimation of timevarying ?,and at the same time adds dummy variables of the nature of ownership,and uses Bayesian algorithm to dynamically test the impacts of industrial policies on systematic risk of the firm with different ownership.Finally,the time-varying ? considers industrial policies factors will be compared with other traditional time-varying ? without considering industrial policies factors to further examine the industrial policies' critical impact on systematic risk of the firm's stock.We find the industrial policies boost up the systematic risk of state-owned firms in relevant industries,while decreasing the systematic risk of non-state-owned firms in these industries.Further testing find that the introduction of industrial policies factors helps to improve the time-varying ? estimator's accuracy and validity(including both the explanatory power of the cross-sectional stock returns and the long-term out-of-sample predictability).In addition,the robustness test results of group regression and replacement of industrial policies dummy variable(using the items of China's "Five-Year Plan")also illustrate the reliability of the conclusions of this article.This article discusses the economic consequences of China's industrial policies from the perspective of the firm's systematic risk.This not only enriches the literature on industrial policies and systematic risk of the firm's stock,but also provides important inspiration for the government to implement industrial policies and investors' portfolio risk management.