Abstract: This paper tries to test the relationship between market perception and government-based customer based on the client data of Chinese listed firms. The results show that government-based customer could obviously increase firm value and analysts' recommendation, and attract more investors' attention as well. Moreover, this study develops a hedge strategy for investors to buy stakes of the companies with more government-based customers, and sell stakes of the companies with less government-based customers. The results show that the hedge strategy can lead to significant excess returns in short and long term. In addition, the results indicate that the relationship we find is attributed to the improvement of profitability. Overall, the findings could help us better understand how government-based customer improve market perception, and government could enhance and improve macro-economic regulation to ensure stable and healthy economic development.

Key words: government-based customer, market perception, stock return, hedge strategy