Financial liberalization and financing constraints: some evidence from panel data of listed Chinese firms

Yan, Isabel K. and Chan, Kenneth S. and Dang, Vinh Q.T. (2011): Financial liberalization and financing constraints: some evidence from panel data of listed Chinese firms.

Abstract

This paper examines the impact of recent financial liberalization in China on the financing constraints and investment of publicly-listed Chinese firms. Two continuous indices are constructed to measure the evolution and intensity of financial reforms: a financial liberalization index and a capital control index. Dynamic panel GMM method is used to estimate firms’ financing constraints in an Euler-equation investment model. The results indicate that while smaller firms face significant financing constraints than larger firms, financial liberalization has raised the financing constraints for the latter and failed to relieve the constraints for the former. It appears financial reforms in China have subjected larger firms to greater market discipline but the reforms probably have not been profound enough to benefit smaller firms.

• Item Type: MPRA Paper
• Language: English
• Keywords: Financial liberalization; investments; financing constraints; Chinese firms
• Subjects: G - Financial Economics > G3 - Corporate Finance and Governance > G31 - Capital Budgeting ; Fixed Investment and Inventory Studies ; Capacity; G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; Capacity; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance

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