Does State Ownership Mitigate Financial Constraints? New Evidence from China

28 Pages Posted: 18 Aug 2017 Last revised: 8 Dec 2017

See all articles by Giang Nguyen

Giang Nguyen

RMIT University - School of Economics, Finance and Marketing

My Nguyen

RMIT- School of Economics, Finance and Marketing

Lary Li

RMIT University - School of Economics, Finance and Marketing; Financial Research Network (FIRN)

Date Written: December 01, 2017

Abstract

We propose new empirical evidence on the negative relationship between state ownership and firms’ financial constraints. Our finding supports for the diminishing effect of market transition on political connections valuation in the context of 1,809 Chinese listed companies over 1999-2015. We find that lower performance of state-controlled firms leads their investment more dependent on generated internal funds compared with their private-controlled counterparts. Additionally, we find that financial constraints vary significantly across different types of state owners. This study also sheds further light on the debate over the use of investment cash flow sensitivity (ICFS) to interpret the extent of financial constraints through confirming the validity of this measure on the Chinese market.

Keywords: Financial Constraints, Political Connections, State Controlled Firms, Investment Cash Flow Sensitivity, U-Shape Investment Curve, SOEs

Suggested Citation

Nguyen, Giang and Nguyen, My and Li, Larry, Does State Ownership Mitigate Financial Constraints? New Evidence from China (December 01, 2017). 30th Australasian Finance and Banking Conference 2017, Available at SSRN: https://ssrn.com/abstract=3021980 or http://dx.doi.org/10.2139/ssrn.3021980

Giang Nguyen (Contact Author)

RMIT University - School of Economics, Finance and Marketing ( email )

Level 12, 239 Bourke Street
Melbourne, Victoria 3000
Australia

My Nguyen

RMIT- School of Economics, Finance and Marketing ( email )

445 Swanston Street
Melbourne, Victoria 3001
Australia
+61 3 9925 5450 (Phone)

Larry Li

RMIT University - School of Economics, Finance and Marketing ( email )

Business
Level 12, 239 Bourke Street
Melbourne, Victoria 3000
Australia

Financial Research Network (FIRN)

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Queensland
Australia

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