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Financial Structure, Corporate Finance and Growth of Taiwan's Manufacturing Firms

Author

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  • Wan-Chun Liu

    (Department of International Trade, Takming College, 56, Huan Shan Road, Sec. 1, Taipei 114, Taiwan, R.O.C.)

  • Chen-Min Hsu

    (Department of Economics, National Taiwan University, 21, Hsu-Chow Road, Taipei 100, Taiwan, R.O.C.)

Abstract

The purpose of this paper is to examine the determinants of Taiwan's manufacturing firm growth, in particular, the effects of financial structure, corporate financing choices and Taiwanese outward FDI in China on firm growth in different industries besides other physical factors discussed in the literature. We construct an unbalanced dynamic panel data using 280 listed and OTC manufacturing firms over the period 1991–2002. The empirical method utilized is the generalized method of moments (GMM) proposed by Arellano and Bond (1991). Our results find that (1) the growth rates of firms are positively related to firm size, age, capital intensity, lagged R&D, export ratio, investment ratio, and profits; (2) high debt-to-equity ratio is associated with low corporation growth, while high return on total assets is associated with high corporation growth, which reflects that a firm with a relatively sound financial structure will facilitate their growth; (3) higher liquidity of stock market relative to the banking sector lead to higher growth of firms. However, larger size of stock market relative to the banking sector leads to lower the firm's growth, i.e., the smaller the indirect finance, the lower the firm growth; (4) firms engaged in FDI toward China might be hollowing-out; (5) individual firms that could be financed more from either bank or equity market will enjoy higher rates of growth compared to others in the same industries, but, those effects on traditional and basic industries are weaker; (6) high bank-financing ratio and internal financing are associated with higher firm growth, while firms using more bonds or equity financing tend to experience lower growth. However, the net positive effects of equity financing on traditional and basic firm growth are significantly greater.

Suggested Citation

  • Wan-Chun Liu & Chen-Min Hsu, 2006. "Financial Structure, Corporate Finance and Growth of Taiwan's Manufacturing Firms," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 9(01), pages 67-95.
    • Handle: RePEc:wsi:rpbfmp:v:09:y:2006:i:01:n:s0219091506000653
    DOI: 10.1142/S0219091506000653
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    References listed on IDEAS

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    1. Stephen R. Bond, 2002. "Dynamic panel data models: a guide to micro data methods and practice," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 1(2), pages 141-162, August.
    2. Beck, Thorsten & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2002. "Financial and legal constraints to firm growth - Does size matter?," Policy Research Working Paper Series 2784, The World Bank.
    3. Stephen Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
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    Cited by:

    1. Huu Manh Nguyen & Thi Huong Giang Vuong & Thi Huong Nguyen & Yang-Che Wu & Wing-Keung Wong, 2020. "Sustainability of Both Pecking Order and Trade-Off Theories in Chinese Manufacturing Firms," Sustainability, MDPI, vol. 12(9), pages 1-25, May.
    2. Nicholas Apergis, 2020. "Financial market imperfections and profitability: New evidence from a large panel of US SME firms," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 39(2), pages 220-241, March.
    3. Antje Schimke, 2011. "Factors Affecting the Growth of Manufacturing Firms - Analysis of Growth Stages: A Case of German Firms," ERSA conference papers ersa10p1386, European Regional Science Association.
    4. Salem, Rami & Usman, Muhammad & Ezeani, Ernest, 2021. "Loan loss provisions and audit quality: Evidence from MENA Islamic and conventional banks," The Quarterly Review of Economics and Finance, Elsevier, vol. 79(C), pages 345-359.

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    More about this item

    Keywords

    Financial structure; corporate finance; firm growth; outward FDI; GMM estimation; JEL Classification: C33; JEL Classification: D92; JEL Classification: F23;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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