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Internal financial constraints and firm productivity in China: Do liquidity and export behavior make a difference?

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  • Chen, Minjia
  • Guariglia, Alessandra

Abstract

Financial factors have been found highly important in influencing firms’ real activities and in promoting aggregate growth. Yet, the linkage between finance and firm-level productivity has been overlooked in the literature. We fill this gap using a panel of 130,840 Chinese manufacturing firms over the period 2001–2007 to estimate a TFP model augmented with cash flow. We find that, especially for illiquid foreign and private firms, productivity is strongly constrained by the availability of internal finance. Furthermore, contrary to private firms, foreign non-exporters display higher dependence of productivity on cash flow than exporters.

Suggested Citation

  • Chen, Minjia & Guariglia, Alessandra, 2013. "Internal financial constraints and firm productivity in China: Do liquidity and export behavior make a difference?," Journal of Comparative Economics, Elsevier, vol. 41(4), pages 1123-1140.
  • Handle: RePEc:eee:jcecon:v:41:y:2013:i:4:p:1123-1140 DOI: 10.1016/j.jce.2013.05.003
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    Cited by:

    1. Yano, Go & Shiraishi, Maho, 2015. "Trade credit and ethnicity: Case of ethnic minority area in China," China Economic Review, Elsevier, vol. 36(C), pages 236-260.
    2. Jun Du & Yama Temouri, 2015. "High-growth firms and productivity: evidence from the United Kingdom," Small Business Economics, Springer, vol. 44(1), pages 123-143, January.
    3. Anna M. Ferragina & Fernanda Mazzotta & Khalid Sekkat, 2016. "Financial constraints and productivity growth across the size spectrum: microeconomic evidence from Morocco," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 6(3), pages 361-381, December.
    4. Cheng, Dong & Hu, Zhongzhong & Tan, Yong, 2017. "Time-Varying Impacts of Financial Credits on Firm Exports: Evidence from Trade Deregulation in China," MPRA Paper 80657, University Library of Munich, Germany.
    5. Yongzheng Liu & Jie Mao, 2017. "How do Tax Incentives Affect Investment and Productivity? Firm-Level Evidence from China," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1716, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    6. International Monetary Fund, 2016. "Ireland; Selected Issues," IMF Staff Country Reports 16/257, International Monetary Fund.
    7. Ameer, Rashid, 2014. "Financial constraints and corporate investment in Asian countries," Journal of Asian Economics, Elsevier, vol. 33(C), pages 44-55.
    8. ABEBE, Girum & TEKLE, Biruk & MANO, Yukichi, 2015. "Changing saving and investment behavior: the impact of financial literacy training and reminders on micro-businesses," Discussion paper series HIAS-E-15, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
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    15. Murphy, Gavin & Siedschlag, Iulia, 2016. "Exporting under Financing Constraints: Firm-level Evidence from EU Countries," Papers WP530, Economic and Social Research Institute (ESRI).

    More about this item

    Keywords

    Productivity; Cash flow; Liquidity; Exports;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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