Financial Liberalization And Financing Constraints: Empirical Research On Chinese Stock Market

During the process of economic development, company is the main force driving the economic growth. To modern companies, capital is the resources to support their sustainable growth. Thus, the most important problem that a company faces is financing. Since 1970, there are many theoretical and empirical analysis on the relationship between financial liberalization and financing constraints as the world finance is becoming free. China has been introducing great financial reforms since its application of the opening-up policy in 1978 in order to construct a free financial system. This paper conducts research on the relationship between financial liberalization and financing constraints.In economics, whether financial liberalization can reduce company's financing constraints is a hot topic. Based on the literature review, this paper provides empirical analysis on China stock market. First, this paper analyzed the issue of company's financing constraints in two periods, namely the cautious financial regulation period and the financial re-liberalization period; Secondly, this paper employed the model by Fazzari, Hubbard and Peterson (1988) to conduct an empirical analysis on listed companies from 1996 to 2004 with GMM estimation method to explain the influence of financial liberalization on company's financing constraints.The empirical study indicates that companies in China faced serious financing constraints problems, while it was greatly enhanced after the financial re-liberalization. But the development of financial markets can not satisfy the company's external financing needs yet, and there are still many reforms and development that should be introduced into China's stock market.