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

56 Pages Posted: 16 Oct 2019

See all articles by Franklin Allen

Franklin Allen

Imperial College London

Junhui Cai

University of Pennsylvania

Xian Gu

Central University of Finance and Economics (CUFE); University of Pennsylvania

QJ Qian

Fudan University - Fanhai International School of Finance (FISF)

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 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

Suggested Citation

Allen, Franklin and Cai, Junhui and Gu, Xian and Qian, Jun QJ and Zhao, Linda and Zhu, Wu, Ownership Network and Firm Growth: What Do Five Million Companies Tell About 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 Pennsylvania ( email )

Philadelphia, PA 19104
United States

Xian Gu (Contact Author)

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

University of Pennsylvania ( email )

3730 Walnut Street
Philadelphia, PA 19104
United States
19104 (Fax)

Jun QJ Qian

Fudan University - Fanhai International School of Finance (FISF)

China

Linda Zhao

University of Pennsylvania - Statistics Department ( email )

Wharton School
Philadelphia, PA 19104
United States

Wu Zhu

University of Pennsylvania

Philadelphia, PA 19104
United States

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