Effects of Financial Liberalisation and Political Connection on Listed Chinese Firms’ Financing Constraints


  • We would like to thank the anonymous referee, Paul De Grauwe, Hiro Ito, Baozhi Qu, Zhaoyong Zhang, Joe Hong Zou and the participants at the GMIEER conference, Perth, Australia, November 2010, at the International Economics and Finance Society Conference, Beijing July 2010, and at the seminar at the University of Macau for valuable comments and suggestion. We also thank Jennifer T. Lai and Mingming Jiang for their expert research assistance.


This study examines the impact of recent financial liberalisation in China on the financing constraints of publicly listed Chinese firms with and without politically connected CEO/Chairman. Two continuous indices are used to measure the evolution and intensity of financial reforms: a financial liberalisation index and a capital control index. The results indicate that while firms without politically connected CEO/Chairman face significant financing constraints and politically connected firms do not, financial liberalisation has reduced the constraints for the former. Similarly, lower capital control in China’s equity market lessens credit constraints for non-connected firms. No statistically significant impact of financial liberalisation is detected with regard to firms that have CEO/Chairman with powerful political background.