Investment and financing constraints in China : does working capital management make a difference ?

Ding, Sai; Guariglia, Alessandra; Knight, John

Abstract

We use a panel of over 120,000 Chinese firms of different ownership types over the period2000-2007 to analyze the linkages between investment in fixed and working capital andfinancing constraints. We find that those firms characterized by high working capital displayhigh sensitivities of investment in working capital to cash flow (WKS) and low sensitivities ofinvestment in fixed capital to cash flow (FKS). We then construct and analyze firm-level FKSand WKS measures and find that, despite severe external financing constraints, those firmswith low FKS and high WKS exhibit the highest fixed investment rates. This suggests thatgood working capital management may help firms to alleviate the effects of financingconstraints on fixed investment.

Citation

Ding, S., Guariglia, A., & Knight, J. (2010). Investment and financing constraints in China : does working capital management make a difference ?

• Working Paper Type: Working Paper
• Publication Date: Jan 1, 2010
• Deposit Date: Dec 7, 2012
• Publicly Available Date: Dec 7, 2012
• Series Title: Durham University Business School Economics Finance Accounting Working Papers
• Keywords: Investment, Cash flow, Financing constraints, Working capital, JEL classifcation: D92 E22.
• Public URL: https://durham-repository.worktribe.com/output/1699646
• Publisher URL: http://www.dur.ac.uk/business/faculty/working-papers/