The Squeezed Middle: Political Affiliation and Financial Constraints in China

Puyang Sun and Wei Jiang

Emerging Markets Finance and Trade, 2015, vol. 51, issue 6, 1074-1083

Abstract: We examine the heterogeneous effects of political affiliation with the different levels of government on private Chinese firms’ financial constraints between 1998 and 2007 with Euler’s equation. Our results provide limited support for the positive effect of political affiliation on the firms’ external finance. Furthermore, we find that affiliating with the below-province-level governments might harden the external finance constraints of private firms when compared to the firms with no political affiliation. Moreover, political affiliation would not ease the private firms’ financial constraints in either capital- or labor-intensive industries.

Date: 2015
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DOI: 10.1080/1540496X.2015.1080493

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