Ownership Network and Firm Growth: What Do Five Million Companies Tell About Chinese Economy

Abstract

The finance-growth nexus has been a central question in interpreting the unprecedented success of Chinese economy. This paper employs an equity ownership network, reflecting the firm-to-firm equity investment relationship, of all the registered firms in China and shows that the network has been expanding rapidly since 2000s, with five million firms being in network by 2017. We find that entering the network and increase in network centrality, both globally and locally, are associated with higher future firm growth. Such effect of network position tends to be more pronounced for high productivity firms and non-state-owned enterprises (non-SOEs). The massive Stimulus Plan, launched by Chinese government in November 2008, crowds out the effect of equity capital. Taken together, our analysis suggests that equity ownership network and bank credit tend to act as substitutes for SOEs, while as complements for non-SOEs in promoting growth.

Keywords: Ownership network; Equity capital; Firm growth; Bank credit

JEL Classification: G10; G30; L14