Financial Constraints Of Chinese Manufacturing Listed Firms

Financial constraints refers to the phenomenon that firms may have limited access to external finance and are obliged to rely on internally generated cash because capital market imperfections can make external finance more expensive than internal finance. Firms facing financial constraints cannot raise external finance; they must pay higher financing costs even if they have access to external finance. So they cannot choose their optimal capital structure and make optimal decisions on their real activities, they may even have to forego profitable investment opportunities. This may distort the efficient allocation of resources and reduce these firms’productivity. Furthermore, firms lack financial support cannot improve productivity by carrying out R&D activities. On the other hand, firms without financial constraints can always easily raise external finance, their productivity will not be affected by financing factors.Since Fazzari used the method of investment-cash flow sensitivity to analyze the problem of financial constraints, there have been a lot of papers using different methods to study financial constraints. This article selects Chinese manufacturing listed firms during 2009-2013 as research sample, estimates their total factor productivity by applying LP method, connects cash flow with total factor productivity and explores the financial constraints of Chinese listed firms from a new perspective. We find that total factor productivity of listed firms as a whole is subject to cash flow, which means Chinese listed firms face financial constraints. In addition, different firms face different financial constraints:state-owned firms have more severe effect of financial constraints than private-owned firms, firms with low liquidity have more severe effect of financial constraints than firms with high liquidity. At the same time, we also concluded that regional factors have an important impact on the firms’ total factor productivity.This article gives the following policy suggestions according to the conclusions:(1) Improve the financial system and the external financing environment;(2) Pay more attention to private-owned firms so that state-owned firms and private-owned firms are on an equal footing in the market;(3) Firms themselves should perfect the internal governance structure and maintain good liquidity;(4) Develop central and western China, Appropriately directed to the central and western areas in policy.