Small businesses and liquidity constraints in financing business investment

Chow, Clement Kong Wing; Fung, Michael Ka Yiu

doi:10.1016/s0883-9026(98)00014-7

Cited by 61 publications

(38 citation statements)

References 29 publications

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“…State owned and collective firms also exhibit positive sensitivities, higher for the former. Chow and Fung (2000) exploit the same data set as Chow and Fung (1998) and, focusing once again on investment equations, show that small firms exhibit lower sensitivities of investment to cash flow than large firms. They explain this finding considering that small firms are dominated by non-state, fast growing enterprises, which may be using their working capital to smooth their fixed investment.…”

Section: A Micro Perspectivementioning

confidence: 99%

Internal finance and growth: Microeconometric evidence on Chinese firms

Guariglia

Liu

Song

2011

Journal of Development Economics

348

222

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Internal Finance and Growth: Microeconometric Evidence on Chinese FirmsAlessandra Guariglia Xiaoxuan Liu Lina Song The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post World Net. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. 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.JEL Classification: D92

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Section: A Micro Perspectivementioning

confidence: 99%

Internal finance and growth: Microeconometric evidence on Chinese firms

Guariglia

Liu

Song

2011

Journal of Development Economics

348

222

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“…Focusing on the determinants of FKS (columns 1, 3, and 5), we see that, for all groups of firms, larger, older and slow-growing firms are more likely to display higher fixed investment-cash flow sensitivities. This could be the case if these firms were unable to manage their working capital efficiently and were therefore forced to adjust their fixed capital investment in the presence of cash flow shocks (Chow and Fung, 2000). Coming to the financial variables, the 33 As in Guariglia (2008), we define as internally financially constrained those firms whose activities are constrained by the amount of internally generated funds they have at hand.…”

Section: Descriptive Statistics and Determinants Of Fks And Wksmentioning

confidence: 99%

Investment and Financing Constraints in China: Does Working Capital Management Make a Difference?

2011

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The full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-prot purposes provided that:• a full bibliographic reference is made to the original source • a link is made to the metadata record in DRO • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders.Please consult the full DRO policy for further details. IntroductionIn the last three decades, the Chinese economy has been characterized by persistently high fixed investment rates and phenomenal growth rates (Song et al., 2010) 1 . Yet, considering that the Chinese financial system is poorly developed, this can been seen as a puzzle (Allen et al., 2005). Several authors have tried to find explanations for this puzzle. Among these, Ayaggari et al. (2010) focus on the role of informal finance, and conclude that it is not because of their access to informal financial sources that Chinese firms were able to grow, despite limited access to external finance. Cull et al. (2009) conclude that access to trade credit did not play a significant role in explaining the puzzle. Guariglia et al. (2011) demonstrate that the Chinese growth miracle was driven by the highly productive private firms, which were able to accumulate very high cash flows. According to their study, it is thanks to this abundant internal finance that Chinese private firms managed to finance their high growth rates despite their limited ability to obtain external finance.In this paper, we focus on investment in fixed capital, which is a significant determinant of growth, both generally (Bernanke and Gurkaynak, 2001;Bond and Schiantarelli, 2004) and in China Knight, 2009, 2010) 2 . Specifically, we explore the role played by working capital management in explaining why Chinese firms were able to invest at very high rates despite significant financing constraints. Working capital is defined as the difference between current assets and current liabilities, and is often taken to be a measure of liquidity. We chose to focus on working capital management -motivated by the observation that, over the period 2000-2007, the Chinese firms in our dataset were characterized by a very high average ratio of working capital to fixed capital (66.6%).Considering that working capital is highly reversible, and that firms can easily adjust it (Fazzari and Petersen, 1993;Carpenter et al., 1994), our aim is to investigate the extent to which, in the presence of fluctuations in cash flow, Chinese firms are able to adjust their working capital instead of their fixed capital investment, therefore alleviating the effects of cash flow shocks on the latter. Our analysis is related to Fazzari and Petersen (1993) who conduct a similar investigation on US firms, and find that these firms are indeed able to 1 According to our dataset, which is fully described in section 3, over the more recent period covering ...

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“…Note that, POEs were not eligible for the bank loans of any kind in the 80s (McMillan, 1997;Nee, 1992). Such a central-control and closed-looping financial system suffocated or hindered the efficient development and exploitation of capital resources (Boyreau-Debray & Wei, 2005;Chow & Fund, 2000;Steinfeld, 1998). Despite a few specially authorized private equity firms in the early 1990s, The private venture capitals (PVCs) were officially approved to enter and operate in China financial market until the very end of 1990s (Bruton & Ahlstrom, 2003).…”

Section: The Financial Policy and The Development Of Entrepreneurshipmentioning

confidence: 99%

Chintrepreneurship – The China-way of Entrepreneurship Government Intervention, Seedling Approach – A Network-based Model of Entrepreneurship

Zhao¹,

Zhang²

2017

MOS

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The development of entrepreneurship in China is coined in this paper as the 'Chintrepreneurship', namely, the China-way of entrepreneurship, which is defined synthetically as an integral result of ideological transformation, industrial institutionalization and privatization, and technological transition from imitation and innovation. From an evolutionary perspective, China-way of entrepreneurship is resulted from the three-staged economic reformation. From a dialectic perspective, government intervention is not only a driver but also an obstacle to the formation of China-way of entrepreneurship, which is outlined as a compounded effect of dual-track policy, financial policy, FDI policy, science, technology, and innovation policy, education and human capital policy. As an exploratory study and relying on an in-depth and extensive literature review, on-site observations and thousands of interviews, this paper endeavors to establish a theoretical framework, to contour the taxonomy and the four constraints, and to distinguish the formational mechanism of China-way of entrepreneurship from the previously defined ones. Theoretically, this paper proposes a need for a paradigm shift from polarized (Washington Consensus) to de-polarized (Beijing Consensus), and argues that, the network-based framework (aka: the neo-classical economics) fits to rationalize the peculiarity and mechanism of China-way of entrepreneurship, uniquely incubated from the politically autocratic, bureaucratic and cronyism oriented social and institutional systems. This paper concludes that entrepreneurship does exist in China, and that, government intervention and seedling approach serve as strategic and exogenous forces, while imitation and low marginal price act as tactical and endogenous factors -together, they constitute the developmental mechanism of CHINTREPRENEURSHIP, in parallel with economic transition, from traditionally the global production networks (GPNs) to presently the global production and trade networks (GPTNs), from manufacturing-based to service and consumption oriented. From the perspective of Darwin's 'survival of the fittest', criticism is definitely needed, in order to legitimize the theory of CHINTREPRENEURSHIP.

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Small businesses and liquidity constraints in financing business investment

Cited by 61 publications

References 29 publications

Internal finance and growth: Microeconometric evidence on Chinese firms

Internal finance and growth: Microeconometric evidence on Chinese firms

Investment and Financing Constraints in China: Does Working Capital Management Make a Difference?

Chintrepreneurship – The China-way of Entrepreneurship Government Intervention, Seedling Approach – A Network-based Model of Entrepreneurship

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