Corporate investment during the financial crisis: Evidence from China |
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| Institution: | 1. University of Bologna, Italy;2. University of Murcia, Spain;3. Universidad Politécnica de Cartagena, Spain;1. University of Nottingham Ningbo, China;2. Southwestern University of Finance and Economics, China;3. University of Nottingham Ningbo China, Taikang East Road, Yinzhou, Ningbo, China;1. Department of Economics and Finance & Research Institute for Business, Hang Seng Management College, Hang Shin Link, Siu Lek Yuen, Shatin, Hong Kong;2. Department of Finance and Insurance, Lingnan University, 8 Castle Peak Road, Tuen Mun, Hong Kong |
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| Abstract: | China's growth model suggests that the 2008 financial crisis may have affected the Chinese economy differently from what one observes in mature market economies. In this paper, we examine how Chinese corporate investment responded to the financial crisis by using 1689 listed nonfinancial firms during Q12006–Q32010. We document that (1) the overall impact of the financial crisis on Chinese corporate investment is negative; (2) among three channels conveying the effect of the financial crisis, namely, the demand channel, the financial constraints channel, and the uncertainty channel, the demand channel dominates; (3) financial assets held by a nonfinancial firm are important in explaining the firm's fixed investment behaviour; (4) as compared to non-state firms, state-controlled firms are less affected by the financial crisis and more active in engaging in financial assets investment; and (5) foreign ownership can be seen as a buffer against the negative effect of the financial crisis and foreign-involved Chinese firms are less active in financial assets investment as compared to domestic firms. |
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