Does Stock Market Rescue Affect Investment Efficiency in the Real Sector?

During China's stock market crash in 2015, the government purchased the stocks of over 1000 firms. We investigate how this government rescue affects investment efficiency and show that rescued firms experience a significant decrease in investment-q sensitivity. This rescue has an adverse impact on price efficiency and impedes managers from learning information for investment decisions. The learning channel is the main mechanism through which the rescue has a real effect. Our findings indicate that programs intended to stabilize the stock market could adversely affect the real efficiency, providing new insight into the consequences of government purchases.