Product Market Risk, Financial Development and Firm Creation Along the Supply Chain

38 Pages Posted: 28 Feb 2021

See all articles by Minwen Li

Minwen Li

Tsinghua Universitiy - School of Economics and Management

Tanakorn Makaew

Securities and Exchange Commission (SEC)

Vojislav Maksimovic

University of Maryland - Robert H. Smith School of Business

Date Written: December 31, 2020

Abstract

We study the effects of product market risk on entrepreneurial activities in China, using a favorable change in U.S. trade policy as a plausibly exogenous shock. We do not find an increase in entry rates for domestic firms in exposed industry. However, for upstream suppliers, entry rates increase significantly in undeveloped cities, but decrease in developed cities. We also find that domestic entrepreneurs in undeveloped areas are more likely to enter the upstream industry by exporting following the shock. Our results suggest that the product market shock only increases domestic firm formation in China at one remove along the supply chain.

Keywords: Entrepreneurship, China, Product Market Competition, Financial Development, Supply Chain

JEL Classification: F13, F23, F61, G15, G32, L26

Suggested Citation

Li, Minwen and Makaew, Tanakorn and Maksimovic, Vojislav, Product Market Risk, Financial Development and Firm Creation Along the Supply Chain (December 31, 2020). Available at SSRN: https://ssrn.com/abstract=3758219 or http://dx.doi.org/10.2139/ssrn.3758219

Minwen Li (Contact Author)

Tsinghua Universitiy - School of Economics and Management ( email )

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Tanakorn Makaew

Securities and Exchange Commission (SEC) ( email )

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Vojislav Maksimovic

University of Maryland - Robert H. Smith School of Business ( email )

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