Investment and financing constraints in China: Does working capital management make a difference? |
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| Authors: | Sai Ding Alessandra Guariglia John Knight |
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| Institution: | 1. Economics, Business School, Adam Smith Building, University of Glasgow, Glasgow G12 8RT, UK;2. Durham Business School, Durham University, 23-26 Old Elvet, Durham DH1 3HY, UK;3. Department of Economics, University of Oxford, Manor Road Building, Oxford OX1 3UQ, UK |
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| Abstract: | We use a panel of over 116,000 Chinese firms of different ownership types over the period 2000–2007 to analyze the linkages between investment in fixed and working capital and financing constraints. We find that those firms characterized by high working capital display high sensitivities of investment in working capital to cash flow (WKS) and low sensitivities of investment in fixed capital to cash flow (FKS). We then construct and analyze firm-level FKS and WKS measures and find that, despite severe external financing constraints, those firms with low FKS and high WKS exhibit the highest fixed investment rates. This suggests that an active management of working capital may help firms to alleviate the effects of financing constraints on fixed investment. |
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| Keywords: | D92 E22 |
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