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Government provided rating, alleviation of financial constraints, and corporate investment

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Listed:
  • Jinyang Li
  • Jenny Jing Wang
  • Minggui Yu

Abstract

The State Taxation Administration (STA) of China established the tax credit rating system in 2015. Together with the banking regulatory authorities, STA entitles the higher‐level firms to favourable bank lending. We find that higher‐level firms are positively associated with capital investment, R&D expenditures and employment. These effects are more pronounced in private firms, small firms, and financially constrained firms. We identify that firms rated higher‐level receive more debt financing at lower cost, and hoard less cash for the precautionary reasons. Our findings highlight the importance of the government rating, especially a developed credit rating market in which is absence in emerging economies.

Suggested Citation

  • Jinyang Li & Jenny Jing Wang & Minggui Yu, 2023. "Government provided rating, alleviation of financial constraints, and corporate investment," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(4), pages 3763-3779, December.
    • Handle: RePEc:bla:acctfi:v:63:y:2023:i:4:p:3763-3779
    DOI: 10.1111/acfi.13064
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    References listed on IDEAS

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