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Do productive firms get external finance? Evidence from Chinese listed manufacturing firms

Chen, Minjia and Matousek, Roman (2020) Do productive firms get external finance? Evidence from Chinese listed manufacturing firms. International Review of Financial Analysis, 67. pp. 1-47. ISSN 10575219

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Due to information asymmetry problem in financial markets good quality firms often find it difficult to prove to external finance providers about their true quality and to distinguish themselves from bad quality firms. We argue that instead of sending indirect signals to financial market good quality firms could focus on improving their productivity to obtain external finance. Besides relying solely on firms' balance sheet information external finance providers using firms' TFP or labour productivity information would have a true knowledge of firms' efficiency and risk. Overall, using a panel of 1591 Chinese listed manufacturing firms between 2003 and 2016 we find that productivity measured by TFP or labour productivity is statistically and economically important and positive in determining firms' external finance, i.e. total leverage, new issue of equity and long-term debt. We find that productivity is helpful for firms to raise new equity finance, but only some weak results for total leverage and long-term debt. Such results hold for both the whole sample and private firm sample. We also find that large and/or old firms and exporting firms are able to make better use of their productivity to gain external finance than their respective counterparts, i.e. small young firms and non-exporting firms. The causality of the regression results is also confirmed by difference-in-difference tests using an exogenous industrial policy shock.

Item Type: Article
Uncontrolled Keywords: capital structure, leverage, firm productivity, TFP, labour productivity, external finance, long term debt, new issue of equity, exporters, ownership
Subjects: H Social Sciences > HC Economic History and Conditions
Divisions: Othman Yeop Abdullah Graduate School of Business
Depositing User: Mrs. Norazmilah Yaakub
Date Deposited: 29 Jul 2020 07:31
Last Modified: 29 Jul 2020 07:31

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