The Financing Constraints Of Listed Companies In China-the Effect Of Ownership Type And Ownership Concentration

Under the premise of the market with asymmetric information, the company will be financing constrained in making investment decisions because the external financing is not the perfect substitution of internal financing. Besides, different companies have different financing constraints. This paper aims to study the impact of two factors on financing constraints of Chinese listed companies. One is the ownership structure, which is private and state-ownership; another is ownership concentration, measured by the proportion of the largest shareholder. We discuss the existence of financing constraints and factors that affect the constraints theoretically and empirically. We select Euler model as the basis for derivation of empirical model, with the investment-cash flow sensitivity on behalf of financing constraints. We also summarize the past achievements on microeconomic factors that affect the company’s financial constraints in China and do innovation in the sample period and variable control.In the empirical part, we selected the data of listed manufacturing companies in 2008-2012, to avoid the impact of the reform of non-tradable shares. The overall sample is divided into private and state-owned enterprises by the actual control, as well as into the low, medium and high concentration by the largest shareholder’s proportion. And do the empirical measurement according to the general and sub-categories. In the empirical model, because of the existence of lagged dependent variable in explanatory variables, we chose to use dynamic panel GMM as the measurement tool, and using one-step system GMM estimates. In addition, in order to control the industry level and macro level factors that affect corporate financing constraints, we use the average industry sales growth to control the industry-level impact and the financial intermediation and stock market development parameters to control the market impact, thereby obtaining a more accurate result. After obtaining the results, we also used Tobin’s Q model and sales acceleration model to prove that this model is robust.Final results show that, investment-cash flow sensitivity is significantly positive in overall sample, indicating that the prevalence of financing constraints in listed manufacturing enterprises. The state-owned enterprises’ financing constraints are relatively more significant to private enterprise, which may result from the financing size, financing decisions, as well as the attractiveness to investors of state-owned enterprises. Financing constraints in low and high concentration enterprises are significant, indicating that the concentration of equity also influences significantly the financing decisions and external financing costs. The relation is like U-shape curve. Under these results, we can draw conclusions and make recommendations for the reform of state-owned enterprise and equity distribution.