Study On The Mitigative Effects Of Financial Development On Listed Chinese Firms’ Financing Constraints

The relationship between financial development and economic growth has been a matter of concern. With the development of study, scholars start to explore deep into the micro-level to seek the specific pathway how financial development impact economic growth. The impact of financial development on corporate financing constraints is a major problem in this area.Researches of corporate financing constraints originated in the theory of corporate financing structure. Modigliani and Miller’s MM theory laid the foundation for the company’s financial theory that in complete markets, internal funds and external funds are fully fungible, that corporate investment and financing options are independent, that the capitals’ structure does not affect its value. Because of asymmetric information and incomplete contracts, financial frictions are widespread, resulting in a big difference of the costs of internal financing and external financing, and external financing costs are too high which limits corporates’ optimal investment plan, generating the financing constraints. Related studies show that the problem of financing constraints is not serious in enterprises of developed countries, and corporate financing constraints in developing countries are more obvious. Because of the lower level of development of financial markets in developing countries, the poorer financing channels for enterprises, and the higher costs of the external financing, financing constraints come into being.With the development of market-oriented reform, a large number of China’s private enterprises gained rapid development, which has made great contributions to our country’s economic development as well as resulted in the coexistence of diverse forms of ownership. Due to special reasons, different types of enterprises in different economic positions generate different characteristics. For private company, the shortage of funds generally restricts its rapid growth. The pace of development of China’s financial industry is quick, but the degree of financial development is still low. In-depth study of the impact of financial development on corporate financing constraints has important theoretical and practical significance. This paper reviews and summarizes the existing research on the constraints of corporate finance, then I find that most studies have focused on the investment-cash flow sensitivity model, and this model has the problem of overestimating financing constraints.In addition, the study focused on the condition of corporate financial constraint between2000and2008,in which China’s economy is on the rise that will have an impact on financing constraints as well as not considered the corporate financing constraints since2009, in which period economics had a downturn. Therefore, through the systematically carding of the existing research, this article choose to use the method of cash-cash flow sensitivity and use the data of listed company of A-share between2002and2012to analyze the mitigative effect of financial development on financing constraints, especially in the angle of different economic times and different ownership.This paper uses methods of both qualitative analysis and quantitative research, the statistical properties of the variables were analyzed qualitatively the first, and then it uses econometric methods to estimate the extended model sensitivity of cash-cash flow and analyzes quantitatively the mitigative effect of financial development on financing constraints.According to the paper, and ultimately we can get the following conclusions: First, listed companies of China’s A-share have a significant sensitivity coefficient of cash-cash flow as a whole, which indicates that listed companies are generally affected by financing constraints, and state-owned listed companies faces more significant financing constraints than non-state-owned listed companies;Small listed companies face more than large listed company, the financial restraints of Small non-state-owned listed companies, large state-owned listed companies, small state-owned listed companies, large non-state-owned listed companies gradually reduce. Second, financial development can significantly reduce the financing constraints faced by listed companies, with respect to state-owned enterprises, the mitigative effect of financial restraint to non-state-owned enterprises is more obvious. Financial development can alleviate the financing constraints faced by the large listed companies significantly, while not small listed companies; the development of Financial institutions can relieve the listed companies’financing constraint significantly, while the development of stock market not. Third, during the economic downturn, the listed companies face a worsening financial constraint, the effects of financial development on alleviating financing constraints is more significant, and relative to the state-owned listed companies, non-state-owned listed companies benefit more from financial development.Finally, based on the conclusions of this paper, we put forward recommendations about how to promote financial development and thus alleviate the financing constraints companies faced.