Wednesday, 25 February 2015

IFDP2015-1129: Government Connections and Financial Constraints: Evidence from a Large Representative Sample of Chinese Firms

Otmane El Rhazi, Robert Cull, Wei Li, Bo Sun, and Lixin Colin Xu We examine the role of firms’ government connections, defined by government intervention in CEO appointment and the status of state ownership, in determining the severity of financial constraints faced by Chinese firms. We demonstrate that government connections are associated with substantially less severe financial constraints (i.e., less reliance on internal cash flows to fund investment), and that the sensitivity of investment to internal cash flows is higher for firms that report greater obstacles to obtaining external funds. We also find that those large non-state firms with weak government connections, likely the engine for innovation in the coming years in China, are especially financially constrained, due perhaps to the formidable hold that their state rivals have on financial resources after the ‘grabbing-the-big-and-letting-go-the-small’ privatization program in China. Our empirical results suggest that government connections play an important role in explaining Chinese firms’ financing conditions, and provide further evidence on the nature of the misallocation of credit by China’s dominant state-owned banks. Full Text



Regards,

Otmane El Rhazi

Press Releases

Equity Trading

Text/Mobile, +44 7414 782 320





RISK DISCLOSURE STATEMENT

ANY OPINIONS, NEWS, RESEARCH, ANALYSIS, OR OTHER INFORMATION ON THIS WEBSITE IS PROVIDED AS GENERAL MARKET COMMENTARY ONLY. THERE ARE RISKS ASSOCIATED WITH UTILIZING AN INTERNET-BASED DEAL EXECUTION TRADING SYSTEM INCLUDING THE FAILURE OF HARDWARE, SOFTWARE, AND INTERNET CONNECTION.

No comments:

Post a Comment