FDI and credit constraints: firm level evidence in China

Jérôme Héricourt and Sandra Poncet ()

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: In this paper, we analyze whether incoming foreign investment in China plays an important role in alleviating domestic firms' credit constraints. Access to external finance is a crucial determinant of business expansion. Using firm-level data on 2,200 domestic companies for the period 1999-2002, we investigate the extent to wich firms are financially constrainted and whether direct foreign investment relaxes financing constraints of firms. When we split domestic firms into public and private firms, we find that public firms' investment decisions are not sensitive to debt ratios or the cost of debt. Nor is there any evidence that public firms are affected by foreign firms presence. We interpret this as evidence in support of the notion of a soft budget constraint for public firms. In contrast, private domestic firms appear more credit constrained than state-owned firms but their fincancing constraints tend to ease in a context of abundant foreign investment.

Keywords: Financial constraint; corporate finance; Foreign Direct Investment; Contraintes financières; finance d'entreprises; Investissement Directs Etrangers (search for similar items in EconPapers)
Date: 2007-02
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00144621v1
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Citations: View citations in EconPapers (17)

Published in 2007

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Related works:
Working Paper: FDI and Credit Constraints: Firm Level Evidence in China (2007)
Working Paper: FDI and credit constraints: firm level evidence in China (2007)
Working Paper: FDI and credit constraints: firm level evidence in China (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:halshs-00144621

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