Financial Constraints and Corporate Investment in China

Kun Mo and Michel Soudan

No 2022-22, Discussion Papers from Bank of Canada

Abstract: Distortions in capital markets can create financial constraints that deter firms from pursuing optimal investment plans. This paper explores how much these constraints affect investment by ownership type in China, using a panel data model estimated with observations on listed firms for the period 2005–2017. We find that privately owned enterprises (POEs) in China face greater financial constraints than state-owned enterprises (SOEs), as POE investment plans depend more on the availability of internally generated cash. Correspondingly, we find evidence that Chinese lenders appear less concerned about the credit risk of SOEs, and that an expansion in credit correlates with a disproportionally larger increase in investment for SOEs.

Keywords: Financial markets; Firm dynamics (search for similar items in EconPapers)
JEL-codes: E22 G1 G3 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2022-12
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-cna and nep-fdg
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Citations: View citations in EconPapers (1)

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