Abstract: China usually uses three traditional policy tools when promoting the implementation of industrial policies: financial subsidies, tax relief and bank preferential credit. This paper studies the investment efficiency and stock price collapse risk of listed companies benefiting from industrial policies, as well as the mechanisms of the above three policy tools. Using the 2006-2018 China’ s A-share listed companies as a sample, this paper finds the following results. First, companies supported by industrial policies have seen a significant decrease in investment efficiency. On the one hand, the industrial policy reduces the investment efficiency of enterprises entirely by increasing financial subsidies and new bank loans, on the other hand, it reduces the investment efficiency of enterprises partly through tax incentives. Second, the decline of enterprise investment efficiency significantly increases the risk of stock price collapse. Compared with enterprises with less tax incentives and financial subsidies, enterprises that receive more tax incentives and financial subsidies due to industrial policy support have a more significant positive impact on the risk of stock price collapse. Third, compared with enterprises in the highest and lowest groups of new bank loans, enterprises in the middle group of new bank loans have the most significant positive relationship between investment efficiency and stock price collapse risk. This paper first discusses its impact on industrial policy and investment efficiency of beneficiary enterprises and its impact on stock price collapse from the perspective of industrial policy tools, and reveals the relationship between industrial policy and investment efficiency, the relationship between investment efficiency and stock price collapse, as well as the role of three industrial policy tools. It provides new ideas for formulating and adjusting industrial policies and evaluating and improving the efficiency of industrial policy tools.

Key words: industrial policy, investment efficiency, stock price crash risk