Ownership Networks and Firm Growth: What Do Forty Million Companies Tell Us About the Chinese Economy?

75 Pages Posted: 16 Oct 2019 Last revised: 29 Aug 2022

See all articles by Franklin Allen

Franklin Allen

Imperial College London

Junhui Cai

University of Notre Dame - Mendoza College of Business

Xian Gu

Durham University Business School

Jun "QJ" Qian

Fanhai International School of Finance, Fudan University

Linda Zhao

University of Pennsylvania - Statistics Department

Wu Zhu

University of Pennsylvania

Date Written: October 6, 2019

Abstract

The finance–growth nexus has been a central question in understanding the unprecedented success of the Chinese economy. Using unique data on all the registered firms in China, we build extensive firm-to-firm equity ownership networks. At the end of 2017, there are 5.6 million firms belonging to at least one network, and 35 million out-of-network firms. Entering a network and increasing network centrality leads to higher firm growth, with the effect of global centralities on growth strengthening over time. The positive effects of network positions become more pronounced for more productive firms and those with more financial constraints, but weaker for SOEs. Firms’ network positions promote growth through both financing and resource-sharing channels. The 2008-09 global financial crisis (GFC) led to a sudden slump in China’s export sectors and exogenous shocks to the equity networks. Non-export firms connected with the export sectors in the equity networks before the GFC gained centrality relative to firms from the same industries but unconnected with export-sector firms in the networks, and greater centrality resulted in higher growth in the post-GFC period. Our evidence also shows that the RMB 4 trillion stimulus launched by the Chinese government in response to the GFC partially “crowded out” the positive network effects.

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

JEL Classification: G10; G30; L14

Suggested Citation

Allen, Franklin and Cai, Junhui and Gu, Xian and Qian, Jun and Zhao, Linda and Zhu, Wu, Ownership Networks and Firm Growth: What Do Forty Million Companies Tell Us About the Chinese Economy? (October 6, 2019). Available at SSRN: https://ssrn.com/abstract=3465126 or http://dx.doi.org/10.2139/ssrn.3465126

Franklin Allen

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Junhui Cai

University of Notre Dame - Mendoza College of Business

Mendoza college of business
University of Notre Dame
Notre Dame, IN 46556-5646
United States

Xian Gu (Contact Author)

Durham University Business School ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

Jun Qian

Fanhai International School of Finance, Fudan University ( email )

Shanghai
China
86-21-63895501 (Phone)
86-21-62934572 (Fax)

HOME PAGE: http://www.fisf.fudan.edu.cn/show-65-69.html

Linda Zhao

University of Pennsylvania - Statistics Department ( email )

Wharton School
Philadelphia, PA 19104
United States

Wu Zhu

University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

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