FDI and credit constraints: firm level evidence in China

Jérôme Héricourt and Sandra Poncet ()

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

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 which firms are fiancially constrained 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 financing constraints tend to ease in a context of abundant foreign investment

Keywords: Financial constraint; corporate finance; Foreign Direct Investment (search for similar items in EconPapers)
JEL-codes: E22 E44 G31 O16 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2007-02
New Economics Papers: this item is included in nep-cna, nep-dev, nep-mac and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Published in Economic Systems, 33, (1), 2009, pp.1-21

Downloads: (external link)
https://shs.hal.science/halshs-00144621 (application/pdf)
https://doi.org/10.1016/j.ecosys.2008.07.001

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:mse:cesdoc:bla07009

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