An Empirical Study Of The Real Effects Of Financial Constraints On China's Enterprises

This paper tries to study the real effects of financial constraints and financial circumstance on China's enterprises. Particularly, this study will focus on several key questions. Firstly, how do financial constraints and capital structure affect China's enterprises' performance in product market? Secondly, how does financial circumstance influence the productivity of China's private sector? Thirdly, how do financial constraints affect the payout policy of China's listed firms? Fourthly, how do financial constraints influence the stock performance of China's listed firms?Specifically, the main contents of this study are as following.In chapter 2,I review the main theories relate to financing of corporations and financial constraints, including capital structure theories, trade-off theories, and pecking-order theories. I also review some models of costly external finance. After then, I review some studies which focus on the relationship between financial constraints and corporate policies, such as investment and cash holding. Lastly, I review the literatures most relate to this study, including how financial constraints affect firm's productivity and stock performance.In Chapter 3, based on a firm-level dataset collected annually from 1998 to 2007 by China's National Bureau of Statistics, this paper studies how debt financing affect China manufacturing firm's performance in product markets. I find that debt financing hurt firm's performance in product markets. Moreover, when the state-owned-enterprises (SOEs) have soft budget constraint, or locate in the area with high marketization degree, the negative influence of debt financing will more heavily in these SOEs. On the contrary, when the non-SOEs have low financing cost, or locate in the area with high marketization degree, the negative influence of debt financing will be alleviated in these non-SOEs. My findings suggest that when the SOEs have soft budget constraint, the role of debt financing as strategic effect and governance effect will be constrained. But on the contrary, a low degree of financial constraint for non-SOEs will strengthen the role of debt financing as strategic effect.In Chapter 4, based on the data of China's scale private industry firms from the same firm-level dataset collected by China's National Bureau of Statistics, this paper studies how financial circumstance or regional financial development affect China's private firms'productivity via capital accumulation and the improving of factor's productivity.I find that regional financial development can improve private firms' single factor productivity, total factor productivity and factor's marginal productivity, but restrain the capital accumulation. Therefore, the financial development in China can improve the allocation and using efficiency of factors among private firms. But the disadvantaged position in financing of private sector can't be changed by the current level of financial development.In Chapter 5, using China's listed manufacturing firms' data from 2001 to 2008, this paper studies how financial constraints affect the payout policy of China's listed firms. I find that financially constrained firms pay fewer cash dividends. Moreover, I also find that for firms with financial constraints, cash dividends are positively related to the firm's market share within its industry. In addition, I find that non-state-owned-enterprises (non-SOEs) pay out more cash dividends when the firm's market share within its industry is higher. My study suggests that the dividend policy of China's listed firms is influenced by financial constraints.In Chapter 6, using China's listed non-financial firms'data from 2001 to 2009, this paper studies how financial constraints influence firm's stock returns, stock price co-movement and adverse selection costs. Based on double sort analysis and factor models, I find financially constrained firms earn lower return than their unconstrained counterparts. Moreover, stock returns of financially unconstrained firms are found to move together. Lastly, I find financially constrained firms have higher adverse selection costs during the trading process.In Chapter 7, I conclude the main results of this study and suggest some policy recommendations. I also conclude some deficiencies of this paper in the last chapter.The main contributions of this study are as following.Firstly, this study finds soft budget of SOEs play an important role in the relationship between debt financing and firm's performance in product market. Moreover, most existed researches related to this issue in China are based on the data of listed firms. But this paper studies such issue using a firm-level dataset collected annually from 1998 to 2007 by China's National Bureau of Statistics, which contains more than 90 percent manufacturing firms in China. Furthermore, this study adds new empirical evidence to the theories of soft budget.Secondly, this study contribute to the literatures relate to the relationship between financial development and productivity in China, especially in the private sector. Moreover, this paper studies such issue using firm level dataset. Furthermore, this study considers capital accumulation, single factor productivity, total factor productivity and marginal productivities of factors simultaneously.Thirdly, this paper adds new empirical evidence to the studies which focus on the relationship between financial constraints and firm's payout policy. Furthermore, this paper also adds new empirical evidence to the literatures about product market competition and firm's financing activities.Fourthly, existed studies didn't consider how financial constraints affect stock performance of China's listed firms except this paper. Moreover, this paper is also the first study which relates financial constraints to stock's adverse selection costs during the trading process.