Peter Egger acknowledges funding from the Austrian Science Fund through grant P17713-G05.
Foreign Partners and Finance Constraints: The Case of Chinese Firms
Article first published online: 26 MAY 2011
© 2011 Blackwell Publishing Ltd
The World Economy
Special Issue: CHINA AND THE GLOBAL FINANCIAL CRISIS
Volume 34, Issue 5, pages 687–706, May 2011
How to Cite
Egger, P. and Nelson, D. (2011), Foreign Partners and Finance Constraints: The Case of Chinese Firms. World Economy, 34: 687–706. doi: 10.1111/j.1467-9701.2011.01348.x
- Issue published online: 26 MAY 2011
- Article first published online: 26 MAY 2011
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.