Download this Paper Open PDF in Browser

Investment and Financing Constraints in China: Does Working Capital Management Make a Difference?

47 Pages Posted: 13 Jun 2011  

Sai Ding

University of Glasgow

Alessandra Guariglia

Durham University - Durham Business School

John B. Knight

University of Oxford - Department of Economics

Date Written: June 13, 2011

Abstract

We use a panel of over 116,000 Chinese firms of different ownership types over the period 2000-2007 to analyze the linkages between investment in fixed and working capital and financing constraints. We find that those firms characterized by high working capital display high sensitivities of investment in working capital to cash flow (WKS) and low sensitivities of investment in fixed capital to cash flow (FKS). We then construct and analyze firm-level FKS and WKS measures and find that, despite severe external financing constraints, those firms with low FKS and high WKS exhibit the highest fixed investment rates. This suggests that good working capital management may help firms to alleviate the effects of financing constraints on fixed investment.

Keywords: investment, cash flow, financing constraints, working capital

JEL Classification: D92, E22

Suggested Citation

Ding, Sai and Guariglia, Alessandra and Knight, John B., Investment and Financing Constraints in China: Does Working Capital Management Make a Difference? (June 13, 2011). Available at SSRN: https://ssrn.com/abstract=1863865 or http://dx.doi.org/10.2139/ssrn.1863865

Sai Ding (Contact Author)

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

Alessandra Guariglia

Durham University - Durham Business School ( email )

Durham Business School
Mill Hill Lane
Durham, DH1 3LB
United Kingdom

John B. Knight

University of Oxford - Department of Economics ( email )

Oxford
United Kingdom

Paper statistics

Downloads
389
Rank
62,674
Abstract Views
1,965