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Negative investment in China: financing constraints and restructuring versus growth

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  • Sai Ding

    (University of Glasgow)

  • Alessandra Guariglia

    ()
    (Durham Business School)

  • John Knight

    (University of Oxford)

Abstract

This paper attempts to address a puzzle in China’s investment pattern: despite high aggregate investment and remarkable economic growth, negative net investment is commonly found at the microeconomic level. Using a large firm-level dataset, we test three hypotheses to explain the existence and extent of negative investment in each ownership group: what we term the efficiency (or restructuring) hypothesis, the (lack of) financing hypothesis, and the (slow) growth hypothesis. Our panel data probit estimations shows that negative investment by state-owned firms can be explained mainly by inefficiency: owing to over-investment or mis-investment in the past, these firms have had to restructure and to get rid of obsolete capital in the face of increasing competition and hardening budgets. The financing explanation holds for private firms, which have had to divest in order to raise capital. However, rapid economic growth weighs against both effects in all types of firms, with a larger impact for firms in the private and foreign sectors. A tobit model, estimated to examine the determinants of the amount of negative investment, yields similar conclusions.

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Bibliographic Info

Paper provided by Durham University Business School in its series Working Papers with number 2010_04.

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Date of creation: 01 Jan 2010
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Handle: RePEc:dur:durham:2010_04

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Postal: Durham University Business School, Mill Hill Lane, Durham DH1 3LB, England
Phone: +44 (0)191 334 5200
Fax: +44 (0)191 334 5201
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Web page: http://www.dur.ac.uk/business
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Keywords: Negative investment; Divestment; Industrial restructuring; Financial constraints; Economic transition; China;

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Cited by:
  1. Paul Mizen & Serafeim Tsoukas, 2014. "What promotes greater use of the corporate bond market? A study of the issuance behaviour of firms in Asia," Oxford Economic Papers, Oxford University Press, vol. 66(1), pages 227-253, January.
  2. Ding, Sai & Guariglia, Alessandra & Knight, John, 2010. "Does China overinvest? Evidence from a panel of Chinese firms," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2010-110, Scottish Institute for Research in Economics (SIRE).
  3. Natasha Agarwal & Chris Milner & Alejandro Riaño, . "Credit Constraints and FDI Spillovers in China," Discussion Papers 11/21, University of Nottingham, GEP.
  4. Sai Ding & Alessandra Guariglia & John Knight, 2010. "Does China overinvest? Evidence from a panel of Chinese firms," Working Papers, Durham University Business School 2010_05, Durham University Business School.
  5. Minjia Chen & Alessandra Guariglia, . "Financial constraints and firm productivity in China: do liquidity and export behavior make a difference?," Discussion Papers 11/09, University of Nottingham, GEP.

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