SEARCH

SEARCH BY CITATION

Abstract

In this paper, we consider the extent to which financial constraints cause domestic firms to seek foreign partners. We employ a large firm-level panel dataset for China which allows us to analyse this question empirically by looking at changes in foreign ownership status. We find a significant impact of several variables reflecting finance constraints. In particular, the results suggest that observed changes in debt-to-turnover ratios tend to be more important than other financial indicators to attract foreign capital. Moreover, foreign ownership relaxes finance constraints in turn and, already in the short run, tends to boost investment at the firm level.