Business, Management and Accounting
5 years ago

Productive firms in China secure external finance through improved efficiency.

International Review of Financial Analysis
Do productive firms get external finance? Evidence from Chinese listed manufacturing firms
Minjia Chen, Roman MatouĊĦek

Paper Summary

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Productive firms in China can get external finance by focusing on improving their efficiency rather than sending indirect signals to financial markets. By looking at firms' productivity levels, finance providers can better understand their quality and risk. A study of 1591 Chinese manufacturing firms from 2003 to 2016 shows that firms with higher productivity are more likely to obtain external finance, such as new equity or long-term debt. Larger, older, and exporting firms benefit more from their productivity in gaining finance compared to smaller, younger, and non-exporting firms. The results suggest that firms' productivity plays a significant role in accessing external finance in China.