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Does Financial Constraint Impede the Innovative Investment? Micro Evidence from China

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  • Dongyang Zhang
  • Wenping Zheng

Abstract

This study is among one of relatively few to test for financial constraints on corporate intangible investment behavior. We provide new evidence on the influence that financing constraints have on innovation investment using data of Chinese industrial firms during 1998–2006. By employing the system Generalized Method of Moments to overcome the endogeneity problem of large dynamic panel data, we find that non-state and foreign-owned firms exhibit positive and statistically significant sensitivity of innovation investment to cash flow, while state-owned enterprises (SOEs) do not. In addition, among firms with these characteristics, short-term banking finance and smoothing function of net working capital play significantly positive roles in financing innovation investment not only for SOEs but also for non-state and foreign firms. Our results are robust to a battery of sensitivity checks.

Suggested Citation

  • Dongyang Zhang & Wenping Zheng, 2020. "Does Financial Constraint Impede the Innovative Investment? Micro Evidence from China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(7), pages 1423-1446, May.
    • Handle: RePEc:mes:emfitr:v:56:y:2020:i:7:p:1423-1446
    DOI: 10.1080/1540496X.2018.1542594
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    Cited by:

    1. Xue-Zhou Zhao & Jun Chen & Feng-Wen Chen & Wei Wang & Senmao Xia, 2020. "How High-Polluting Firms Suffer from Being Distracted form Intended Purpose: A Corporate Social Responsibility Perspective," IJERPH, MDPI, vol. 17(24), pages 1-29, December.
    2. Liu, Yijun & Xu, Rong, 2024. "Money talks: How financial constraint influence corporate environmental behavior prioritization," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 556-578.
    3. Farid Ullah & Ma Degong & Muhammad Anwar & Saddam Hussain & Rizwan Ullah, 2021. "Supportive tactics for innovative and sustainability performance in emerging SMEs," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-31, December.
    4. Si, Deng-Kui & Li, Xiao-Lin & Huang, Shoujun, 2021. "Financial deregulation and operational risks of energy enterprise: The shock of liberalization of bank lending rate in China," Energy Economics, Elsevier, vol. 93(C).
    5. Yuan, Dongliang & Shang, Duo & Ma, Yufei & Li, Dehui, 2022. "The Spillover Effects of Peer Annual Report Tone for Firm Innovation Investment: Evidence from China," Technological Forecasting and Social Change, Elsevier, vol. 177(C).

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