Employing the World Bank Enterprise Survey (WBES) dataset, which covers over 130 thousand firms in 139 economies from 2006 to 2017, we investigate the effect of residual state ownership, with or without the moderating effect of foreign ownership, on firms’ financing patterns. First, we find that residual state ownership is positively related with a firm’s external finance, and foreign ownership is negatively related with a firm’s external finance. Second, residual state ownership’s positive effect on external finance disappears when foreign ownership and the interaction of the two are taken into consideration. The positive effect of the state-foreign interaction on a firm’s external finance is both statistically and economically significant. The increased external finance of firms with both state and foreign ownerships mainly comes from private banks and new equity. Finally, we explore the channels through which residual state ownership or foreign ownership affect firms’ financing patterns. Firms with residual state ownership only or foreign ownership only do not actively expand in market or innovate. While firms with both state and foreign ownerships are engaging in market expansion and innovation eagerly
