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Credit constraints and firm productivity: Microeconomic evidence from China

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  • Li, Yao Amber
  • Liao, Wei
  • Zhao, Chen Carol

Abstract

We use a panel of over 600,000 Chinese firms (1998–2009) to investigate the effects of credit constraints on firm productivity. We find that both internal finance through a firms own cash flow and external credit supply significantly promote firm productivity and productivity growth rates. Specially, there is a substitution effect between internal finance and external credit supply: the marginal effect of internal finance on firm productivity is weaker when firms have sufficient external credit. Also, internal finance is more important for firms in those financially vulnerable industries. Finally, we observe that marginal effect of both external credit supply and internal finance on firm's productivity is weaker for SOEs than non-SOEs.

Suggested Citation

  • Li, Yao Amber & Liao, Wei & Zhao, Chen Carol, 2018. "Credit constraints and firm productivity: Microeconomic evidence from China," Research in International Business and Finance, Elsevier, vol. 45(C), pages 134-149.
    • Handle: RePEc:eee:riibaf:v:45:y:2018:i:c:p:134-149
    DOI: 10.1016/j.ribaf.2017.07.142
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    More about this item

    Keywords

    TFP; TFP growth rate; Credit constraint; Internal financing; External finance dependence; Financial market development;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • G2 - Financial Economics - - Financial Institutions and Services
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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