Government Connections and Financial Constraints : Evidence from a Large Representative Sample of Chinese Firms
This paper examines the role of firms' government connections, defined by government intervention in the appointments of Chief Executive Officers and the status of state ownership, in determining the severity of financial constraints faced by...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2013/02/17386101/government-connections-financial-constraints-evidence-large-representative-sample-chinese-firms http://hdl.handle.net/10986/13145 |
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okr-10986-13145 |
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oai_dc |
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Digital Repository |
| institution_category |
Foreign Institution |
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Digital Repositories |
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World Bank Open Knowledge Repository |
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World Bank |
| language |
English en_US |
| topic |
ACCESS TO BANK ACCESS TO BANK LOANS ACCESS TO CREDIT ACCESS TO EXTERNAL FINANCE ACCESS TO FINANCE ACCESS TO LOAN ACCESS TO LOANS ACCOUNTING AFFILIATED ORGANIZATIONS AGENCY PROBLEMS ANNUAL SALES ARREARS ASSET MANAGEMENT ASSET MANAGEMENT COMPANIES ASSET SALES BAILOUT BAILOUTS BALANCE SHEETS BANK CREDIT BANK FINANCING BANK LOAN BANK POLICY BANKING SECTOR BANKING SYSTEM BANKS BOND BOOK VALUE BORROWING BORROWING CAPACITY BRIBE BUSINESS CLIMATE BUSINESS ENVIRONMENT BUSINESS ENVIRONMENTS BUSINESS INVESTMENT CAPITAL ALLOCATION CAPITAL CONTROL CAPITAL INVESTMENT CAPITAL MARKET CAPITAL RATIOS CAPITAL STOCK CASH FLOW CASH FLOWS CHECKS COLLATERAL COMMERCIAL DISPUTES CONSTRAINTS ON ACCESS CORPORATE FINANCE CORPORATE GOVERNANCE CORPORATE INVESTMENT CORRUPTION COST OF DEBT COST OF EQUITY COST OF FUNDS CREDIT ALLOCATION CREDIT CONSTRAINTS CREDIT HISTORIES CREDIT MARKET CREDITWORTHINESS DEBT DEPENDENT DERIVATIVE DEVELOPING COUNTRIES DISCRIMINATION DIVIDEND DIVIDEND PAYMENTS DIVIDENDS DUMMY VARIABLE EARNINGS ECONOMIC ACTIVITY ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC PERFORMANCE ECONOMIC POLICY ECONOMIC SYSTEMS ENTERPRISE PERFORMANCE ENTREPRENEUR EQUALITY EQUIPMENT EQUITY CAPITAL EQUITY MARKET EQUITY MARKETS EXPENDITURE EXPENDITURES EXTERNAL CREDIT EXTERNAL FINANCING EXTERNAL FUNDS FINANCIAL CONSTRAINT FINANCIAL CONSTRAINTS FINANCIAL DIFFICULTY FINANCIAL FACTORS FINANCIAL INFRASTRUCTURE FINANCIAL INTERMEDIATION FINANCIAL MANAGEMENT FINANCIAL MARKET FINANCIAL NEEDS FINANCIAL RESOURCES FINANCIAL SERVICES FINANCIAL STRESS FINANCIAL STUDIES FINANCIAL STUDY FINANCIAL SUPPORT FINANCIAL SYSTEM FINANCING ARRANGEMENTS FINANCING CONSTRAINTS FINANCING NEEDS FIRM GROWTH FIRM PERFORMANCE FIXED ASSETS FOREIGN CAPITAL FOREIGN DIRECT INVESTMENT FOREIGN FIRMS FOREIGN LOAN FOREIGN OWNERSHIP FUND INVESTMENT FUTURE LOANS GOVERNMENT BAILOUT GOVERNMENT INTERVENTION GOVERNMENT INVOLVEMENT GOVERNMENT OWNERSHIP GOVERNMENT REGULATIONS GREATER ACCESS GROWTH OPPORTUNITIES GROWTH RATE GROWTH RATES HOLDING HUMAN CAPITAL INCOME INDICATORS OF ACCESS INFORMAL FINANCE INSTITUTIONAL REFORMS INSTRUMENT INTEREST PAYMENTS INTEREST RATE INTERNAL FINANCE INTERNAL FINANCING INTERNAL FUNDS INTERNATIONAL BANK INVENTORY INVESTING INVESTMENT BEHAVIOR INVESTMENT CASH FLOW SENSITIVITIES INVESTMENT DECISIONS INVESTMENT EFFICIENCY INVESTMENT FUNDING INVESTMENT NEEDS INVESTMENT OPPORTUNITIES INVESTMENT PATTERNS INVESTMENT RATES INVESTMENT SPENDING INVESTMENT-CASH FLOW SENSITIVITIES INVESTOR PROTECTION IPO KEY CHALLENGE LACK OF ACCESS LARGE FIRMS LEGAL CONSTRAINTS LEGAL SYSTEM LIQUIDITY LIQUIDITY CONSTRAINT LIQUIDITY CONSTRAINTS LIQUIDITY PROBLEMS LOAN ACCESS LOAN GUARANTEES LOCAL GOVERNMENT LOCAL GOVERNMENTS LOCAL INFRASTRUCTURE MARGINAL COST MARKET REGULATION MARKET VALUE MATCHING FUNDS MATURITIES NET VALUE OUTPUT OUTSTANDING BANK LOANS OWNERSHIP SHARES OWNERSHIP STRUCTURE POLITICAL ECONOMY POOR ACCESS POSITIVE COEFFICIENT PREFERENTIAL ACCESS PRIVATE SECTOR DEVELOPMENT PRIVATIZATION PRIVILEGED ACCESS PRODUCTIVE INVESTMENT PROFITABILITY PROPERTY RIGHTS PUBLIC POLICY REINVESTMENT RESTRUCTURING PROGRAM RETURN RETURNS SALES GROWTH SECURITIES SHAREHOLDER SHAREHOLDER PROTECTION SHAREHOLDING SMALL BUSINESSES SOURCES OF FINANCE START-UPS STATE BANKS STATEMENTS STOCK RETURNS TAX TAX BENEFITS TAX STRUCTURES TERMS OF LOAN TRADE CREDIT TRADE FINANCING TRADING TRANSPARENCY TURNOVER UNDERDEVELOPED CAPITAL MARKET WAGES |
| spellingShingle |
ACCESS TO BANK ACCESS TO BANK LOANS ACCESS TO CREDIT ACCESS TO EXTERNAL FINANCE ACCESS TO FINANCE ACCESS TO LOAN ACCESS TO LOANS ACCOUNTING AFFILIATED ORGANIZATIONS AGENCY PROBLEMS ANNUAL SALES ARREARS ASSET MANAGEMENT ASSET MANAGEMENT COMPANIES ASSET SALES BAILOUT BAILOUTS BALANCE SHEETS BANK CREDIT BANK FINANCING BANK LOAN BANK POLICY BANKING SECTOR BANKING SYSTEM BANKS BOND BOOK VALUE BORROWING BORROWING CAPACITY BRIBE BUSINESS CLIMATE BUSINESS ENVIRONMENT BUSINESS ENVIRONMENTS BUSINESS INVESTMENT CAPITAL ALLOCATION CAPITAL CONTROL CAPITAL INVESTMENT CAPITAL MARKET CAPITAL RATIOS CAPITAL STOCK CASH FLOW CASH FLOWS CHECKS COLLATERAL COMMERCIAL DISPUTES CONSTRAINTS ON ACCESS CORPORATE FINANCE CORPORATE GOVERNANCE CORPORATE INVESTMENT CORRUPTION COST OF DEBT COST OF EQUITY COST OF FUNDS CREDIT ALLOCATION CREDIT CONSTRAINTS CREDIT HISTORIES CREDIT MARKET CREDITWORTHINESS DEBT DEPENDENT DERIVATIVE DEVELOPING COUNTRIES DISCRIMINATION DIVIDEND DIVIDEND PAYMENTS DIVIDENDS DUMMY VARIABLE EARNINGS ECONOMIC ACTIVITY ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC PERFORMANCE ECONOMIC POLICY ECONOMIC SYSTEMS ENTERPRISE PERFORMANCE ENTREPRENEUR EQUALITY EQUIPMENT EQUITY CAPITAL EQUITY MARKET EQUITY MARKETS EXPENDITURE EXPENDITURES EXTERNAL CREDIT EXTERNAL FINANCING EXTERNAL FUNDS FINANCIAL CONSTRAINT FINANCIAL CONSTRAINTS FINANCIAL DIFFICULTY FINANCIAL FACTORS FINANCIAL INFRASTRUCTURE FINANCIAL INTERMEDIATION FINANCIAL MANAGEMENT FINANCIAL MARKET FINANCIAL NEEDS FINANCIAL RESOURCES FINANCIAL SERVICES FINANCIAL STRESS FINANCIAL STUDIES FINANCIAL STUDY FINANCIAL SUPPORT FINANCIAL SYSTEM FINANCING ARRANGEMENTS FINANCING CONSTRAINTS FINANCING NEEDS FIRM GROWTH FIRM PERFORMANCE FIXED ASSETS FOREIGN CAPITAL FOREIGN DIRECT INVESTMENT FOREIGN FIRMS FOREIGN LOAN FOREIGN OWNERSHIP FUND INVESTMENT FUTURE LOANS GOVERNMENT BAILOUT GOVERNMENT INTERVENTION GOVERNMENT INVOLVEMENT GOVERNMENT OWNERSHIP GOVERNMENT REGULATIONS GREATER ACCESS GROWTH OPPORTUNITIES GROWTH RATE GROWTH RATES HOLDING HUMAN CAPITAL INCOME INDICATORS OF ACCESS INFORMAL FINANCE INSTITUTIONAL REFORMS INSTRUMENT INTEREST PAYMENTS INTEREST RATE INTERNAL FINANCE INTERNAL FINANCING INTERNAL FUNDS INTERNATIONAL BANK INVENTORY INVESTING INVESTMENT BEHAVIOR INVESTMENT CASH FLOW SENSITIVITIES INVESTMENT DECISIONS INVESTMENT EFFICIENCY INVESTMENT FUNDING INVESTMENT NEEDS INVESTMENT OPPORTUNITIES INVESTMENT PATTERNS INVESTMENT RATES INVESTMENT SPENDING INVESTMENT-CASH FLOW SENSITIVITIES INVESTOR PROTECTION IPO KEY CHALLENGE LACK OF ACCESS LARGE FIRMS LEGAL CONSTRAINTS LEGAL SYSTEM LIQUIDITY LIQUIDITY CONSTRAINT LIQUIDITY CONSTRAINTS LIQUIDITY PROBLEMS LOAN ACCESS LOAN GUARANTEES LOCAL GOVERNMENT LOCAL GOVERNMENTS LOCAL INFRASTRUCTURE MARGINAL COST MARKET REGULATION MARKET VALUE MATCHING FUNDS MATURITIES NET VALUE OUTPUT OUTSTANDING BANK LOANS OWNERSHIP SHARES OWNERSHIP STRUCTURE POLITICAL ECONOMY POOR ACCESS POSITIVE COEFFICIENT PREFERENTIAL ACCESS PRIVATE SECTOR DEVELOPMENT PRIVATIZATION PRIVILEGED ACCESS PRODUCTIVE INVESTMENT PROFITABILITY PROPERTY RIGHTS PUBLIC POLICY REINVESTMENT RESTRUCTURING PROGRAM RETURN RETURNS SALES GROWTH SECURITIES SHAREHOLDER SHAREHOLDER PROTECTION SHAREHOLDING SMALL BUSINESSES SOURCES OF FINANCE START-UPS STATE BANKS STATEMENTS STOCK RETURNS TAX TAX BENEFITS TAX STRUCTURES TERMS OF LOAN TRADE CREDIT TRADE FINANCING TRADING TRANSPARENCY TURNOVER UNDERDEVELOPED CAPITAL MARKET WAGES Cull, Robert Li, Wei Sun, Bo Xu, Lixin Colin Government Connections and Financial Constraints : Evidence from a Large Representative Sample of Chinese Firms |
| geographic_facet |
East Asia and Pacific China |
| relation |
Policy Research Working Paper;No. 6352 |
| description |
This paper examines the role of
firms' government connections, defined by government
intervention in the appointments of Chief Executive Officers
and the status of state ownership, in determining the
severity of financial constraints faced by Chinese firms. In
line with the previous literature, the paper demonstrates
that investment by non-state firms is highly sensitive to
internal cash flows, while no such sensitivity is found for
government-owned enterprises. Even within the subset of
non-state firms, government connections are associated with
substantially less severe financial constraints (less
reliance on internal cash flows to fund investment). The
paper also finds that large non-state firms with weak
government connections are especially financially
constrained, due perhaps to the formidable hold that their
state rivals have on financial resources after the
"grabbing-the-big-and-letting-go-the-small"
privatization program in China. Firms with
government-appointed Chief Executive Officers also have
significantly lower investment intensities, due perhaps to
their lower-powered incentives. The empirical results
suggest that government connections play an important role
in explaining Chinese firms' investment behavior and
financing conditions, and provide further evidence on the
nature of the misallocation of credit by China's
dominant state-owned banks. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Cull, Robert Li, Wei Sun, Bo Xu, Lixin Colin |
| author_facet |
Cull, Robert Li, Wei Sun, Bo Xu, Lixin Colin |
| author_sort |
Cull, Robert |
| title |
Government Connections and Financial Constraints : Evidence from a Large Representative Sample of Chinese Firms |
| title_short |
Government Connections and Financial Constraints : Evidence from a Large Representative Sample of Chinese Firms |
| title_full |
Government Connections and Financial Constraints : Evidence from a Large Representative Sample of Chinese Firms |
| title_fullStr |
Government Connections and Financial Constraints : Evidence from a Large Representative Sample of Chinese Firms |
| title_full_unstemmed |
Government Connections and Financial Constraints : Evidence from a Large Representative Sample of Chinese Firms |
| title_sort |
government connections and financial constraints : evidence from a large representative sample of chinese firms |
| publisher |
World Bank, Washington, DC |
| publishDate |
2013 |
| url |
http://documents.worldbank.org/curated/en/2013/02/17386101/government-connections-financial-constraints-evidence-large-representative-sample-chinese-firms http://hdl.handle.net/10986/13145 |
| _version_ |
1764422785431502848 |
| spelling |
okr-10986-131452021-04-23T14:03:07Z Government Connections and Financial Constraints : Evidence from a Large Representative Sample of Chinese Firms Cull, Robert Li, Wei Sun, Bo Xu, Lixin Colin ACCESS TO BANK ACCESS TO BANK LOANS ACCESS TO CREDIT ACCESS TO EXTERNAL FINANCE ACCESS TO FINANCE ACCESS TO LOAN ACCESS TO LOANS ACCOUNTING AFFILIATED ORGANIZATIONS AGENCY PROBLEMS ANNUAL SALES ARREARS ASSET MANAGEMENT ASSET MANAGEMENT COMPANIES ASSET SALES BAILOUT BAILOUTS BALANCE SHEETS BANK CREDIT BANK FINANCING BANK LOAN BANK POLICY BANKING SECTOR BANKING SYSTEM BANKS BOND BOOK VALUE BORROWING BORROWING CAPACITY BRIBE BUSINESS CLIMATE BUSINESS ENVIRONMENT BUSINESS ENVIRONMENTS BUSINESS INVESTMENT CAPITAL ALLOCATION CAPITAL CONTROL CAPITAL INVESTMENT CAPITAL MARKET CAPITAL RATIOS CAPITAL STOCK CASH FLOW CASH FLOWS CHECKS COLLATERAL COMMERCIAL DISPUTES CONSTRAINTS ON ACCESS CORPORATE FINANCE CORPORATE GOVERNANCE CORPORATE INVESTMENT CORRUPTION COST OF DEBT COST OF EQUITY COST OF FUNDS CREDIT ALLOCATION CREDIT CONSTRAINTS CREDIT HISTORIES CREDIT MARKET CREDITWORTHINESS DEBT DEPENDENT DERIVATIVE DEVELOPING COUNTRIES DISCRIMINATION DIVIDEND DIVIDEND PAYMENTS DIVIDENDS DUMMY VARIABLE EARNINGS ECONOMIC ACTIVITY ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC PERFORMANCE ECONOMIC POLICY ECONOMIC SYSTEMS ENTERPRISE PERFORMANCE ENTREPRENEUR EQUALITY EQUIPMENT EQUITY CAPITAL EQUITY MARKET EQUITY MARKETS EXPENDITURE EXPENDITURES EXTERNAL CREDIT EXTERNAL FINANCING EXTERNAL FUNDS FINANCIAL CONSTRAINT FINANCIAL CONSTRAINTS FINANCIAL DIFFICULTY FINANCIAL FACTORS FINANCIAL INFRASTRUCTURE FINANCIAL INTERMEDIATION FINANCIAL MANAGEMENT FINANCIAL MARKET FINANCIAL NEEDS FINANCIAL RESOURCES FINANCIAL SERVICES FINANCIAL STRESS FINANCIAL STUDIES FINANCIAL STUDY FINANCIAL SUPPORT FINANCIAL SYSTEM FINANCING ARRANGEMENTS FINANCING CONSTRAINTS FINANCING NEEDS FIRM GROWTH FIRM PERFORMANCE FIXED ASSETS FOREIGN CAPITAL FOREIGN DIRECT INVESTMENT FOREIGN FIRMS FOREIGN LOAN FOREIGN OWNERSHIP FUND INVESTMENT FUTURE LOANS GOVERNMENT BAILOUT GOVERNMENT INTERVENTION GOVERNMENT INVOLVEMENT GOVERNMENT OWNERSHIP GOVERNMENT REGULATIONS GREATER ACCESS GROWTH OPPORTUNITIES GROWTH RATE GROWTH RATES HOLDING HUMAN CAPITAL INCOME INDICATORS OF ACCESS INFORMAL FINANCE INSTITUTIONAL REFORMS INSTRUMENT INTEREST PAYMENTS INTEREST RATE INTERNAL FINANCE INTERNAL FINANCING INTERNAL FUNDS INTERNATIONAL BANK INVENTORY INVESTING INVESTMENT BEHAVIOR INVESTMENT CASH FLOW SENSITIVITIES INVESTMENT DECISIONS INVESTMENT EFFICIENCY INVESTMENT FUNDING INVESTMENT NEEDS INVESTMENT OPPORTUNITIES INVESTMENT PATTERNS INVESTMENT RATES INVESTMENT SPENDING INVESTMENT-CASH FLOW SENSITIVITIES INVESTOR PROTECTION IPO KEY CHALLENGE LACK OF ACCESS LARGE FIRMS LEGAL CONSTRAINTS LEGAL SYSTEM LIQUIDITY LIQUIDITY CONSTRAINT LIQUIDITY CONSTRAINTS LIQUIDITY PROBLEMS LOAN ACCESS LOAN GUARANTEES LOCAL GOVERNMENT LOCAL GOVERNMENTS LOCAL INFRASTRUCTURE MARGINAL COST MARKET REGULATION MARKET VALUE MATCHING FUNDS MATURITIES NET VALUE OUTPUT OUTSTANDING BANK LOANS OWNERSHIP SHARES OWNERSHIP STRUCTURE POLITICAL ECONOMY POOR ACCESS POSITIVE COEFFICIENT PREFERENTIAL ACCESS PRIVATE SECTOR DEVELOPMENT PRIVATIZATION PRIVILEGED ACCESS PRODUCTIVE INVESTMENT PROFITABILITY PROPERTY RIGHTS PUBLIC POLICY REINVESTMENT RESTRUCTURING PROGRAM RETURN RETURNS SALES GROWTH SECURITIES SHAREHOLDER SHAREHOLDER PROTECTION SHAREHOLDING SMALL BUSINESSES SOURCES OF FINANCE START-UPS STATE BANKS STATEMENTS STOCK RETURNS TAX TAX BENEFITS TAX STRUCTURES TERMS OF LOAN TRADE CREDIT TRADE FINANCING TRADING TRANSPARENCY TURNOVER UNDERDEVELOPED CAPITAL MARKET WAGES This paper examines the role of firms' government connections, defined by government intervention in the appointments of Chief Executive Officers and the status of state ownership, in determining the severity of financial constraints faced by Chinese firms. In line with the previous literature, the paper demonstrates that investment by non-state firms is highly sensitive to internal cash flows, while no such sensitivity is found for government-owned enterprises. Even within the subset of non-state firms, government connections are associated with substantially less severe financial constraints (less reliance on internal cash flows to fund investment). The paper also finds that large non-state firms with weak government connections are especially financially constrained, due perhaps to the formidable hold that their state rivals have on financial resources after the "grabbing-the-big-and-letting-go-the-small" privatization program in China. Firms with government-appointed Chief Executive Officers also have significantly lower investment intensities, due perhaps to their lower-powered incentives. The empirical results suggest that government connections play an important role in explaining Chinese firms' investment behavior and financing conditions, and provide further evidence on the nature of the misallocation of credit by China's dominant state-owned banks. 2013-04-11T15:39:12Z 2013-04-11T15:39:12Z 2013-02 http://documents.worldbank.org/curated/en/2013/02/17386101/government-connections-financial-constraints-evidence-large-representative-sample-chinese-firms http://hdl.handle.net/10986/13145 English en_US Policy Research Working Paper;No. 6352 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research East Asia and Pacific China |