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Institutional development and financing decisions: evidence from a cross-regional study on Chinese listed firms

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  • Nancy Huyghebaert
  • Lihong Wang

Abstract

In this paper, we empirically investigate how differences in the development of legal and financial institutions across Chinese provinces and municipalities affect the financing decisions of Chinese listed firms. Our results indicate that a stronger regional enforcement of property rights reduces firms’ reliance on bank loans. Conversely, in regions with a larger government expropriation risk, firms raise more and shorter-term bank debt. Active regional bank lending positively impacts the debt ratio and the fraction of bank loans, but shortens loan maturities. The size of the local banking sector, the market capitalization as well as the liquidity of local stocks bear no relation with the capital structure. Overall, these relations do not depend upon the identity of the firm's controlling shareholder. Nonetheless, our results do suggest that state-controlled firms benefit from easier stock market access.

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  • Nancy Huyghebaert & Lihong Wang, 2016. "Institutional development and financing decisions: evidence from a cross-regional study on Chinese listed firms," The European Journal of Finance, Taylor & Francis Journals, vol. 22(4-6), pages 288-318, April.
    • Handle: RePEc:taf:eurjfi:v:22:y:2016:i:4-6:p:288-318
    DOI: 10.1080/1351847X.2013.773263
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    Cited by:

    1. Casino-Martínez, Alejandro & López-Gracia, Jose & Mestre-Barberá, Reyes, 2023. "The regulatory environment and financial constraints of private firms in the European Union," Global Finance Journal, Elsevier, vol. 55(C).
    2. G. A. Borshchevskiy., 2019. "Institutional environment creating for attracting investment into infrastructure: The cases of Russian regions," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 2.
    3. Yuming Zhang & Chao Xing & David Tripe, 2020. "Redistribution of China’s Green Credit Policy among Environment-Friendly Manufacturing Firms of Various Sizes: Do Banks Value Small and Medium-Sized Enterprises?," IJERPH, MDPI, vol. 18(1), pages 1-28, December.
    4. Xing, Chao & Zhang, Yuming & Wang, Yuan, 2020. "Do Banks Value Green Management in China? The Perspective of the Green Credit Policy," Finance Research Letters, Elsevier, vol. 35(C).
    5. Zou, Yang & Wang, Xiaoming, 2022. "Distance, information and bank lending in China," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).

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