Internal Finance and Growth: Microeconometric Evidence on Chinese Firms

Does the availability of internal finance constrain firm growth? Or does it foster it? To answer these questions, we use a panel of 407,096 Chinese firms over the period 2000-2005. We estimate dynamic assets growth equations augmented with cash flow, and find that the growth of state owned enterprises is not affected by cash flow, while that of privately owned firms is most affected. Considering that they represent 62% of the observations in our sample and that, in spite of being typically discriminated against by financial institutions, private firms have experienced sensational growth rates, our results suggest that internal finance has fostered rather than constrained their growth.Assets growth, Cash flow, Financial constraints.

Internal Finance and Growth: Microeconometric Evidence on Chinese Firms

Using a panel of 79,841 Chinese firms over the period 2000-2007, we examine the extent to which liquidity constraints affect firms. assets growth. We find that state owned enterprises are not affected, while the availability of internal finance represents a binding constraint for the growth of private firms, especially those operating in coastal regions, with negligible foreign ownership. Thanks to their high productivity, cash flow is, however, so abundant for these firms that they are able to grow at a very fast rate, despite being discriminated against by financial institutions. Hence, well developed external capital markets may not always be needed for fast economic growth.Assets growth, Cash flow, Financial constraints.

Internal Finance and Growth: Microeconometric Evidence on Chinese Firms

Does the availability of internal finance constrain firm growth? Or does it foster it? To answer these questions, we use a panel of 407,096 Chinese firms over the period 2000−2005. We estimate dynamic assets growth equations augmented with cash flow, and find that the growth of state owned enterprises is not affected by cash flow, while that of privately owned firms is most affected. Considering that they represent 62% of the observations in our sample and that, in spite of being typically discriminated against by financial institutions, private firms have experienced sensational growth rates, our results suggest that internal finance has fostered rather than constrained their growth.assets growth, cash flow, financial constraints