Financial Liberalization Reform Research, The Role Of Financing Constraints

As a wave of financial liberalization has swept the developing world since 1980s, a large amount of theoretical and empirical researches have been conducted on the macro and micro effects that financial liberalization may have. China's financial reforms since 1978 have also been characterized by financial liberalization and have reached remarkable achievements. With such a background, this paper focuses on the effects of China's financial liberalization reforms might have on financing constraints of firms, especially taking sizes and industries into consideration, so as to make a proper review and some comments on micro effects of financial reforms.In Chapter One, theoretical background and relevant literature will be reviewed on financial liberalization, financing constraints of firms and the relationship between these two aspects. In Chapter Two, a brief review will be conducted on China's financial liberalization process. Based on the summary of the methods used to measure the degree of financial liberalization, Principal Component Analysis and summation by terms shall be applied to construct China's financial liberalization indices in 1978-2009. At the beginning of Chapter Three, the relationship between China's financial liberalization and financing constrains of firms will be summarized, followed by a theoretical model and an empirical model respectively to describe a firm's financing constraints. The indices generated in Chapter Two shall be introduced into the Euler model and empirical research shall be conducted on financing constraints by testing financial statistics of listed companies in Shanghai Securities Exchange and Shenzhen Securities Exchange in 1998-2009 using Generalized Method of Moments.The conclusions indicate that China's financial liberalization reforms have so far had no significant overall influence on firms' financing constraints, which may mainly caused by the size effects. Financing constraints of large-sized firms have been significantly eased, while there are no such signs on medium-sized firms. Financing constraints of small-sized firms have been deteriorated. However, the above conclusions may differ among industries.