The Effect On Financing Constraint Of FDI

Based on statistics related to Chinese enterprise, which originated from a questionnaire survey launched by world bank in2006, this essay comparatively analyze whether the involvement of foreign investment can alleviate enterprise’ pressure on financing, sampled by the enterprises located in Sichuan province and Guangdong province.Through initial empirical analysis, the author found that state-owned enterprises rarely face financing pressure, and FDI have no significant impact on its financing constraints. But for private enterprises, FDI exert a significant influence on financing constraints due to its stressful financing situation. Further empirical analysis manifest that the three main mechanism FDI affect firms’ financing are internal mechanism, transverse mechanism and longitudinal mechanism. It is the fact that these three mechanism work variously in Sichuan and Guangdong. Overall, the regression results prove that FDI do alleviate financing constraints for all the enterprises, no matter it’s in Guangdong or Sichuan.It is more significant for the impact FDI have on enterprise in Guangdong than Sichuan via the transverse mechanism and longitudinal mechanism. In addition, it is not significant that FDI improve the enterprise’s financing situation in Sichuan via internal mechanism, which indicates that Sichuan enterprises are much less efficient when operating foreign capital comparing with enterprises in Guangdong.The enterprise in the sample can also be divided into two categorizes, namely state-owned enterprises and private enterprises, according to ownership. For private enterprises, FDI obviously facilitate the financing issue. For state-owned enterprises, on the contrary, FDI do not increase the financing, and there is a certain degree of "squeeze out effect" to some extent.Based on two standards (foreign investment lower than49%and25%), domestic enterprises can be divided into Group A and Group B and then do regression estimation. In Group A, the regression results of Sichuan province enterprise are much less significant compared with Guangdong. But the Fin.Forw of Guangdong is insignificant, which means the enterprise of Guangdong mainly export the products to foreign enterprises when utilizing the foreign capital and don’t have close relationship with domestic enterprises. For Group B, Fin.Hori perform significantly and other cross terms are insignificant. After classifying the enterprises according to different ownership, the Fin.Forw of Sichuan province is significant while Fin.Fdi turn negative and become insignificant. One reason of this phenomenon is the sample includes less private enterprises with foreign investment. Besides, those enterprises which hold foreign investment decrease the variance of FDI. This leads to the result that transverse or longitudinal mechanism perform more prominently instead of internal mechanism.