-
Full Terms & Conditions of access and use can be found
athttp://www.tandfonline.com/action/journalInformation?journalCode=mree20
Download by: [University of Florida] Date: 11 January 2018, At:
04:56
Emerging Markets Finance and Trade
ISSN: 1540-496X (Print) 1558-0938 (Online) Journal homepage:
http://www.tandfonline.com/loi/mree20
Credit Allocation and Firm Productivity underFinancial
Imperfection: Evidence from ChineseManufacturing Firms
Hua Shang, Teng Zhang & Puman Ouyang
To cite this article: Hua Shang, Teng Zhang & Puman Ouyang
(2017): Credit Allocation and FirmProductivity under Financial
Imperfection: Evidence from Chinese Manufacturing Firms,
EmergingMarkets Finance and Trade, DOI:
10.1080/1540496X.2017.1410474
To link to this article:
https://doi.org/10.1080/1540496X.2017.1410474
Accepted author version posted online: 27Dec 2017.
Submit your article to this journal
Article views: 3
View related articles
View Crossmark data
http://www.tandfonline.com/action/journalInformation?journalCode=mree20http://www.tandfonline.com/loi/mree20http://www.tandfonline.com/action/showCitFormats?doi=10.1080/1540496X.2017.1410474https://doi.org/10.1080/1540496X.2017.1410474http://www.tandfonline.com/action/authorSubmission?journalCode=mree20&show=instructionshttp://www.tandfonline.com/action/authorSubmission?journalCode=mree20&show=instructionshttp://www.tandfonline.com/doi/mlt/10.1080/1540496X.2017.1410474http://www.tandfonline.com/doi/mlt/10.1080/1540496X.2017.1410474http://crossmark.crossref.org/dialog/?doi=10.1080/1540496X.2017.1410474&domain=pdf&date_stamp=2017-12-27http://crossmark.crossref.org/dialog/?doi=10.1080/1540496X.2017.1410474&domain=pdf&date_stamp=2017-12-27
-
Acce
pted M
anus
cript
1
Credit Allocation and Firm Productivity under Financial
Imperfection: Evidence from Chinese Manufacturing Firms*
Hua SHANG
Research Institution of Economics and Management, Southwestern
University of
Finance and Economics, No.55 Guanghuacun Street, Chengdu,
Sichuan, China,
610074, Email address: [email protected]
Teng ZHANG**
Corresponding author. School of Securities and Futures,
Southwestern University of
Finance and Economics, No.55 Guanghuacun Street, Chengdu,
Sichuan, China,
610074, Email address: [email protected]
Puman OUYANG
Research Institution of Economics and Management, Southwestern
University of
Finance and Economics, No.55 Guanghuacun Street, Chengdu,
Sichuan, China,
610074, Email address: [email protected]
* We would like to thank Xun Zhang, the two anonymous referees
and the editor Ali Kutan for their comments and suggestions. All
the remaining errors are ours. ** Corresponding author.
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
https://crossmark.crossref.org/dialog/?doi=10.1080/1540496X.2017.1410474&domain=pdf&date_stamp=2017-12-24
-
Acce
pted M
anus
cript
2
Abstract: The role of the financial system, especially the
credit market, in
productivity enhancement has interested many researchers.
However, how credit
allocation affects firms’ productivity in emerging economies
remains unanswered.
Using data from the Annual Survey of Industrial Firms (ASIF)
during 1999-2007, this
paper examines whether credit allocation impacts Chinese firms’
productivity under
financial imperfection. Our results show that the size of credit
market has no influence
on Chinese firms’ total factor productivity (TFP), while
allocating more credit to
non-SOEs significantly promotes firm TFP. Our further analysis
shows that firms
which are less subsidized, smaller, more external financially
dependent, and more
labor intensive are affected more by credit allocation. Since
China is the largest
emerging economy, our analysis also sheds light on the
development of firms in
emerging economies.
Key words: credit allocation; financial depth; firm TFP;
Heterogonous effects
JEL classification: D24; G21; O12
1. Introduction
There is a growing literature investigating the factors leading
to the differences of
aggregate total factor productivity (TFP) in each country. Many
theories have pointed
out that the differences of the TFP between emerging economies
and developed
countries is due to misallocation of resources and financial
friction in emerging
economies (Restuccia & Rogerson, 2008; Hsieh & Klenow,
2009; Buera et al., 2009).
Since firms’ TFP is an important element of aggregate TFP,
examining how financial
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
3
market impacts firms’ TFP provides the micro sight to very
understanding of the
relationship between finance and aggregate TFP. In a market
where financial
resources are limited, a better allocation of resources rather
than size of the financial
market is expected to promote firms’ TFP. In particular, if
credit can be allocated to
firms based on their performances, the firms’ TFP and then the
aggregate TFP is
expected to be promoted.
China provides a good case study to investigate the credit
allocation and firms’
TFP under financial imperfection. The misallocation of credit
has long been a
problem in China. The financial institutions, especially the
banks, are used to
distributing disproportionately more credit to poorly performing
SOEs (State-owned
enterprises) (Allen et al., 2005; Bai et al., 2006; Cull et al.,
2009). The non-SOEs are
lacking of credit due to their short credit history (Stein,
2002) and low chances of
being bailed out by the governments (Brandt & Li, 2003).
However, the performance
of non-SOEs on average are much better than SOEs. As shown in
Fig.1, the average
firm TFP of SOEs is substantially lower than that of non-SOEs
during 1999-2007,
indicating that the Chinese SOEs are less productive than
non-SOEs. Erosa and
Hidalgo-Cabrillana (2007) point out that financial market
imperfection may distort
firms’ selection and discourage firm growth. Therefore, the
misallocation of credit
may impede the enhancement of Chinese firms’ TFP on average.
This is because the
low-productive SOEs always have better access to external
finance regardless of their
performances as credit expands, and they may have no incentive
to struggle in
difficult but productivity-improving activities, resulting in a
continuing low-level TFP.
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
4
On the other hand, the more productive non-SOEs are unlikely to
obtain enough
financial support from the credit market. This might hinder
their ability to further
improve their TFP.
Under the circumstance of financial imperfection in China, we
expect that firms’
TFP will be higher in a province with higher proportion of
credit to non-SOEs. Since
in current China, the non-SOEs have better performances and are
more financially
constraint than SOEs in general, allocating more credit to
non-SOEs indicates that the
financial system is evolving towards a well-developed system
(Firth et al., 2009; Fan
et al., 2011; Qian & Yeung, 2015; Qian et al., 2015). This
is consistent with the
argument of King and Levine (1993a) that if the private sector
is more productive
than the public sector, a system allocating a higher proportion
of credit to the private
sector is a well-developed system. The finance and growth
literature suggests that
macro-level financial environment affect firms’ behavior and
outcomes. King and
Levine (1993b) argue that financial system plays an active role
in evaluating,
managing and funding firms’ activities that leads to
productivity growth. Rajan and
Zingales (1998) show that financial development reduces the
moral hazard and
adverse selection problems and thus decreases the costs of
external finance to firms.
Amore et al. (2013) and Hsu et al. (2014) find that financial
market development and
credit supply affects technology innovation of firms. Krishnan
et al. (2015) argue that
credit supply affects small firms’ productivity in US.1 Fig.2
further illustrates the
1 In the finance and growth literature, it is common to analyze
how country-level or region-level financial factors affect firms’
behavior. Among the papers we cite, King and Levine (1993b), Rajan
and Zingales (1998) and Amore et al. (2013) conduct cross-country
analyses and investigate how country-level financial development
affects firms’ behavior. Hsu et al. (2014) and Krishnan et al.,
(2015) analyze how state-level credit supply affects publicly
traded
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
5
increasing trend of firm TFP and credit allocation measured by
an index constructed
from the ratio of credit to non-SOEs to total credit over time.2
The similar increasing
trend of firm TFP and credit allocation implies that a better
credit allocation may help
to improve Chinese firms’ TFP on average. Therefore, it is
natural to expect that firms
in a province allocating more credit to non-SOEs would have
higher TFP which is the
most popular measure of productivity.
As far as we know, there is no research directly investigating
how credit allocation
affects Chinese firms’ TFP. We intend to fill this gap. We also
exam the heterogeneous
effects of credit allocation on firms’ TFP across firm and
industry characteristics. The
data we mainly rely on is panel data of manufacturing firms
obtained from Annual
Survey of Industrial Firms (ASIF) collected by National Bureau
of Statistics of China
(NBSC) during 1999-2007.3 The majority of firms in this database
are non-listed
firms. The firm-level panel data allows us to control many
observed and unobserved
variables, such as firm-, industry-, and province-level
variables which influence firms’
TFP. This reduces the potential endogeneity problem caused by
omitted variables. In
our estimation, the reverse causality is not a big problem since
the independent
variables are lagged by one year.4 Credit allocation in current
period is expected to
affect firm performance in next period, while, a shock to
firm-level TFP is unlikely to
affect the provincial-level credit allocation in the previous
period. We further address
the potential endogeneity concern by controlling additional
unobserved variables and manufacturing firms’ innovation and small
firms’ productivity in US, respectively. 2 Please refer to Section
3.1 for a detailed description of the index. 3 In Section 3.2 we
provide the reason for sample period selection. 4 Since firms’ TFP
is an output of firm’s operation, while, credit is an input, it
makes more sense that the lagged (beginning-period) credit
allocation affects firms’ TFP.
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
6
using instrumental variable (IV) method for robustness check.
Furthermore, in order
to reduce the measurement errors of firm TFP and make our
estimation results more
trustworthy, we adopt the approach of Brandt et al. (2012) to
construct the
complementary panel of manufacturing firms and estimate
firm-level TFP by using
the Levinsohn and Petrin’s (2003) method.
Our results show that under financial imperfection in China, the
size of the credit
market has no significant impact on firm TFP, while allocating
more credit to
non-SOEs contributes to the enhancement of firm TFP. Specially,
credit allocation
contributes 5.425% to the rise of a Chinese firm’ TFP on
average. This finding
suggests that a more efficient credit allocation, rather than
simply enlarging the size of
the credit market, is an important way to promote firm TFP in
China. Our results also
imply that under financial imperfection, the efficient credit
allocation enhances
aggregate TFP in China, which is consistent with the argument in
Hsieh and Klenow
(2009) that the aggregate TFP would be boosted if the allocation
of resources
becomes better. The results are robust by adopting different
methods to cluster
standard errors, using different samples, and addressing the
potential endogenous
concerns. Our further investigation indicates that a better
credit allocation enhances
TFP more for firms which are less subsidized, smaller, more
external financially
dependent, and more labor intensive.
Compared with the previous studies, our contributions are as
follows: firstly,
unlike many studies which have documented that the size of
financial market plays an
important role in TFP enhancement (Benhabib & Spiegel, 2000;
Jeong & Townsend,
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
7
2007), we find that in a country under financial imperfection,
credit allocation is more
important than the size of credit market in promoting firms’
TFP. This finding
especially has implications for the development of many emerging
economies in
which credit resources are limited. Our results indicate that a
better credit allocation
may narrow the difference of emerging economies’ aggregate TFP
with that of
developed countries.
Secondly, unlike much empirical research which investigates how
finance affects
aggregate TFP (Guillaumont-Jeanneney et al., 2006; Jeong &
Townsend, 2007;
Guariglia & Poncet, 2008; Han & Shen, 2015), we exam how
credit allocation
impacts firms’ TFP. To the best of our knowledge, the
association between firm-level
TFP and credit allocation has never been tested directly before.
As we have argued
previously, firms’ activities and then their productivity would
be affected by the credit
allocation in their regions. 5 Further, by analyzing firm-level
TFP rather than
province-level TFP, we can understand the micro-foundation on
how credit allocation
affects TFP through investigating the firm and industry
heterogeneous effects.
Firm-level data also allows us to control many observed and
unobserved variables and
reduce the endogeneity problem. In general, these cannot be done
by using aggregate
TFP (province-level TFP).
Finally, our paper also has important policy implications for
China which is going
through the economic transformation. Recently, China is
struggling to upgrade its
supply quality since the labor costs are increasing. One primary
way to upgrade 5 Please see the third paragraph for the detail.
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
8
supply quality is improving firms’ productivity or efficiency
(Foster et al., 2008;
Roberts et al., 2012). Therefore our findings indicate that one
of the important efforts
of upgrading supply quality could be made through improving the
efficiency of credit
allocation.
Our paper is closely related to the papers examining how finance
affects
firm-level TFP. Krishnan et al. (2015) study whether and how the
access to banking
credit in the state-level influences small firms’ TFP by
exploiting a natural experiment
following interstate banking deregulations in the United States.
They find that small
firms’ TFP increases after their states implement these
deregulations. In addition,
Nucci et al. (2005) and Gatti and Love (2008) find significant
impacts of firms’
capital structure and access to credit on their TFP for Italy
and Bulgaria, respectively.
Chen and Guariglia (2013) who argue that increase of firms’ cash
flow promotes firms’
productivity. Different from these papers, we examine how the
credit allocation
impacts Chinese firms’ TFP.
The rest of this paper is organized as follows. Section 2
briefly reviews the
evolution of credit allocation in China. Section 3 demonstrates
the methodology and
describes the data. Section 4 presents our main empirical
findings and robustness
check. Section 5 discusses the heterogeneous effects of credit
allocation on firm TFP.
Section 6 concludes.
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
9
2. Evolution of credit allocation in China
After several years of China’s Reform and Openness, the
financial system is
gradually becoming more developed in order to adapt to the rapid
changes in China’s
real economy. One reflection is on the credit allocation, which
is becoming more
efficient and effective.
As we know, China’s financial system originates from a mono-bank
system in
which the People's Bank of China (PBOC) controlled all banking
credit and only
allocated them to SOEs (Chen, 2006). After China’s Reform and
Openness in 1978,
the components of China’s economy became diversified, especially
due to the rapid
development of non-SOEs. Thus the financial system was forced to
adapt to the
development of China’s real economy. The financial system is
growing rapidly and
plays a more important role in resource allocation.
Since the late 1980s, various types of financial institutions
have been established,
as a result the credit has been extended to more diversified
customers. In 1997, the
central government first formally allowed banks to extend loans
to the private sector
(Firth et al., 2009), and a bit more credit has been allocated
to non-SOEs after that
(Lin, 2011). However, the four state-owned banks which dominate
China’s
commercial banking system continue to lend to SOEs only
(Guariglia & Poncet,
2008). As a result of that, the more efficient and dynamic
non-state sector still has
extremely limited access to banking credit. It is because the
central and local
governments issued lending quotas to SOEs which submitted
investment plans, while
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
10
the non-SOEs were excluded from those submitting investment
plans. This
discrimination against the non-SOEs is from the asymmetric
information problems
due to their short credit history (Stein, 2002) and low chances
of being bailed out by
the governments (Brandt & Li, 2003).
In 1998, the PBOC reformed the commercial banks’ lending
behavior, abolishing
the loan size restrictions on the four state-owned commercial
banks. The PBOC’s
regulations of commercial banks also changed from mandatory
plans to guiding plans,
and the PBOC required all commercial banks to rank their loans
into five categories
according to loan risk from 1998 to 2000. After China’s entry
into the World Trade
Organization (WTO) in 2001, the financial system further went
through several
reforms, including attracting foreign strategic investors, going
public, and
reconstructing themselves. The financial institutions thus
became more efficient and
the credit allocation started to become more commercialized. For
example, based on
the World Bank survey data from 2002, Firth et al. (2009) show
that the state-owned
banks allocating credit to non-state-owned sectors tend to use
commercial judgments.
Those reforms by the PBOC also helped China’s financial
institutions to avoid severe
impacts from the 2007–2009 global financial crisis.
Recently, the central government has also announced a series of
measures to
promote the availability of banking credit to small and medium
enterprises (SMEs)
and most of them are non-SOEs. Under the series reforms on
financial system, even
though the proportion of lending to non-SOEs has been increased
gradually, the
non-SOEs are still financially constrained (Poncet et al., 2010)
and the financial
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
11
system is urged to be further improved.
3. Methodology
3.1. Empirical model
As discussed in our Introduction, we identify the effects of
credit allocation on
firm TFP using the fixed effects (FE) model by controlling for
firm fixed effects. In
addition, to tackle any possible heteroskedasticity and serial
correlation problems, we
cluster the standard errors at the industry-province level. Our
baseline model is given
by: =∝ + , + ( ), + + + (1) where denotes TFP of firm locating
in province in year . In our baseline estimation, besides credit
allocation, we also examine how the size of credit
market influences firm TFP as a comparison. Therefore, ,
represents the financial depth which is a commonly used indicator
for the size of credit market, or
credit allocation of province in year − 1. ( ), is a vector of
variables including firm, industry, and province characteristics.
and are time fixed
effects and firm fixed effects, respectively. is the error term.
TFP measurement. In the production function, the residual in the
total output
which cannot be explained by the total input is often referred
to as TFP. Hence, an
increase in firm TFP represents the technology progress and
efficiency improvement
in using resources for a firm. There are mainly three methods to
estimate TFP. An
earlier one is the OLS method. However, the OLS estimation
approach does not tackle
endogenous problems, such as simultaneity bias and
self-selection bias, providing less
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
12
accurate results. The other one is the Olley and Pakes (1996)
method, in which a
non-parametrically inverted investment equation is used to
instrument productivity
shocks in the production function. This approach does alleviate
the simultaneity and
sample selection bias by controlling for firms’ entry and exit.
However, the
investment information is often unavailable in most databases.
Even though this
information is available, not every firm invests in each year,
thus there are many zero
values of the investment variable. To tackle this problem,
Levinsohn and Petrin (2003)
develop another method in which intermediates rather than
investments are adopted as
the proxy of unobserved productivity shocks. The Levinsohn and
Petrin (2003)
method is more feasible than the Olley and Pakes (1996) method,
since the
information of intermediates is easier to access than that of
investments.
In the present paper, the firm-level investments cannot be
observed directly from
our dataset either. Although this variable can be constructed
from the capital stock
information (Brandt et al., 2012), lots of missing and
non-positive values are
generated, which would make the estimated firm TFP to be
untrustworthy. More
importantly, using the computed investments to estimate firm TFP
also increases the
measurement errors of estimated TFP. To address those concerns
and make our results
more trustworthy, we adopt the Levinsohn and Petrin (2003)
method to estimate TFP
for each firm.6 The details of the estimation approach can be
found in Levinsohn and
Petrin (2003). It is worthy noting that we estimate firm TFP by
allowing each industry
to have a different production function, since there is a large
heterogeneity across 6 We use the Levinsohn and Petrin (2003)
method to estimate TFP for each firm with revenue, employment,
fixed assets, and intermediate inputs.
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
13
industries.
Financial depth and credit allocation. Credit market plays a
very important role in
supporting non-listed manufacturing firms in China since they
mostly rely on credit to
finance their operation. Following the literature, we use the
ratio of total credit to
GDP for 31 Chinese provinces to measure local financial depth:
Financialdepth = (2) where the variable, “Financial depth”,
represents the size of the credit market in
province in year .
We use an index constructed from the ratio of credit allocated
to non-SOEs to total
credit for 31 provinces as a proxy for credit allocation. This
indicator represents the
allocation of credit between SOEs and non-SOEs. Since non-SOEs
in China are in
general more efficient and more credit constrained than SOEs,
the increase of this
indicator indicates a better allocation of credit. This is
consistent with King and
Levine’s (1993) argument that a financial system which allocates
more financial
resources to the private sector is more active in researching
firms and managing risks
than that only allocating financial resources to the public
sector.
The credit allocation indicator is constructed by Fan et al.
(2011), sponsored by the
National Economic Research Institute of China and the China
Reform Foundation. It
is a sub-index of the National Economic Research Institute
(NERI) index.7 The
original data are from China Banking Yearbooks constructed by
China Banking
7 The NERI index describes many aspects of the Chinese economy,
including the government, banking market, legal environment,
economic structure and trade barrier. Please refer to www.cerdi.
org/uploads/sfCmsContent/html/192/Fangang.pdf for description of
the data in English.
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
14
Association, statistical yearbooks of various provinces, related
statistical data on
banking and finance, and surveys on banking and finance on each
province. This
measure has been used in many papers (i.e., Qian & Yeung,
2015; Qian et al., 2015).
The index is constructed by the following method. The base year
of the index is
2001. The largest value for the base year is 10 and the lowest
is 0. In 2001, the score
for each province can be written as:
= × 10 (3) where is the ratio of credit allocated to non-SOEs to
total credit of province p.
and are the smallest and the largest among the 31 provinces,
respectively. For other years except 2001, the score for each
province is calculated as: ( ) = ( ) ( )( ) ( ) × 10 (4) where (t)
represents the index year, (0) represents the base year 2001. Based
on
equations (3) and (4), we can obtain the credit allocation index
for each province
during our sample period. And the largest value of the credit
allocation index can be
above 10.
Other controls. Besides controlling for the time invariant
variables, such as firm
fixed effects , we also control for many time-variant variables
at firm, industry, and
province level in order to mitigate omitted variable bias. To
capture the difference
between SOEs and non-SOEs, we control a dummy variable for SOEs
and treat
non-SOEs as the base group. Similarly, we introduce a dummy
variable for exporters
to control the influence of exporting behavior on firm TFP.
Since employment and
subsidy revenue may affect firms’ real activities, we also
control for employment and
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
15
subsidy ratio in our estimations. In addition, firm TFP may be
influenced by the
market structure faced by firms, thus we control for the
Herfindahl-Hirschman Index
(HHI) calculated by summing up the square of each firm’s market
share at the annual
2-digit industry level. A higher HHI means higher concentration
in the industry. We
also control for many variables representing provincial
characteristics, including GDP
per capita, human capital and the stock of foreign direct
investment (FDI), to isolate
the impact of macro environment on firm TFP. Table 1 lists the
definition of main
variables used in this paper.
3.2. Data source
Our empirical analysis mainly relies on the data including
information on the
firm-level characteristics, and province-level credit which has
been mentioned in
Section 3.1. The firm-level variables are obtained from Annual
Survey of Industrial
Firms (ASIF). Since the data of credit allocation of each
province is only available
from 1999, and the data of ASIF during 1998-2007 is widely used
in the previous
studies due to its stability and accuracy (Brandt et al., 2012;
Liu & Qiu, 2016),
therefore in the present paper we set the sample period from
1999 to 2007. The ASIF
is collected by National Bureau of Statistics of China (NBSC),
which covers the
annual production information of all SOEs and non-SOEs with
sales revenue above 5
million RMB (about USD 650,000). Most firms included in this
dataset are non-listed
firms. We use the approach of Brandt et al. (2012) to construct
the panel. In this paper,
the industry is identified by the CIC (China Industry
Classification) 2-digit industry
code. Since Ouyang et al. (2015) point out that if a firm
switches from one industry to
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
16
another or changes its location, its other characteristics may
also change. Therefore,
we delete the firms which have changed their industry based on
the 2-digit industry
code or have changed provinces during our sample period.
Moreover, we delete firms
whose sales revenue are below 5 million RMB, which have fewer
than 8 employees,
or which have non-positive total assets in order to mitigate
measurement errors. And
then we match the firm-level data with the province-level data.
8 Finally, our
unbalanced panel includes 240,702 firms, which corresponds to
990,387 firm-year
observations, spanning 29 industries and 31 provinces. In
addition, we depreciate all
pecuniary variables with 2-digit price deflators constructed by
Brandt et al. (2012) in
order to control for the price fluctuation.9 The descriptive
statistics of our main
variables are presented in Table 2.
As shown in Table 2, there is a large variation of TFP across
firms, implying the
apparent heterogeneity for firms in productivity. There is also
a substantial variation
in credit allocation across provinces with standard deviation of
3.16. Moreover, in our
sample, SOEs only account for 10% of the firms, and 29% of firms
are exporters.
8 The province-level credit allocation is constructed by Fan et
al. (2011), and the province-level financial depth
and control variables are from the China statistical yearbooks
in each year. 9 For example, we construct the real capital stock by
adopting the approach developed by Brandt et al. (2012), which is
used to estimate firm TFP.
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
17
4. Results
4.1. The impact of financial depth on firm TFP
Before we investigate the effects of credit allocation on firm
TFP, we first check
whether financial depth influences firm TFP based on equation
(1). As mentioned
above, we adopt the fixed effects (FE) model that controlling
for firm fixed effects to
estimate equation (1). It is worthy noticing that as the firm’s
location (by province)
and industry do not change during the sample period, firm fixed
effects can also
capture the industry and province fixed effects. The results are
reported in Table 3.
In column (1) of Table 3, we test the causal effects of
financial depth on firm TFP
without other controls. The coefficient on financial depth is
negative and significant at
the 10% level, showing that the increase in size of credit
market impedes the
improvement of firm TFP. After introducing micro and macro
controls successively in
columns (2) and (3), the coefficients on financial depth turn
insignificant, indicating
that, on average, financial depth has no impact on firm TFP.
This finding is consistent
with some previous macro-level studies which find that financial
depth or the high
level of banking credit in China does not cause a higher growth
(i.e., Liang & Teng,
2006).
Why does financial depth not promote the firm TFP? One
possibility is that even
though China’s financial system has some improvement during our
sample period, the
financial imperfection or the misallocation of financial
resources in China is far from
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
18
being eliminated yet. Therefore, it is unlikely for the size of
credit market to exert
positive effects on firm TFP yet.
4.2. The impact of credit allocation on firm TFP
We have confirmed that the size of credit market has no
contribution to firm TFP
enhancement. How about allocating more credit to the non-SOEs?
Fig.2 shows that
credit allocation and firm TFP have a similar increasing trend
over time. Therefore we
wonder if allocating more credit to non-SOEs could help to
enhance Chinese firms’
TFP. In this subsection, we carry out an investigation based on
equation (1) with the
firm-level data.
The regression results regarding the impact of credit allocation
on firm TFP are
reported in Table 4. In the first three columns, the
coefficients on credit allocation are
positive and significant, showing that on average, the ratio of
credit to non-SOEs over
total credit is positively associated with firm TFP. In
particular, our results indicates
that when the credit allocation index increases by one standard
deviation, the TFP of a
firm increases by 0.9796%.10 Since the average credit allocation
in each province
arises about 0.7 every year and the average of a Chinese firm’
TFP increases about
0.04 each year, our results also show that credit allocation
contributes 5.425% to the
rise of Chinese firms’ TFP on average during our sample
period.11
However, during 1999-2008, many Chinese SOEs are transformed
into non-SOEs.
Therefore, one may wonder whether the reduction of the number of
SOEs may
contaminate our results. To address this concern, we further
introduce non-SOE ratio 10 It is calculated as 3.16*0.0031*100%. 11
This is calculated as 0.0031*0.7/0.04*100%.
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
19
measured by the ratio of non-SOEs to total number of firms in a
province in column
(4). As shown in column (4), the coefficient of the non-SOE
ratio is not significant.
More importantly, the coefficient of credit allocation is
similar to that in column (3),
suggesting that the transformation of SOEs in China does not
exert significant impact
on our main results.
Table 4 also shows that the coefficients on SOEs in columns
(2)-(4) are negative
and significant at the 1% level, again confirming that SOEs
perform worse compared
with non-SOEs, on average. Moreover, exporters are more
productive than
non-exporters, which is in line with Melitz (2003) that only the
more productive
producers can enter into the foreign markets. In addition, firms
obtaining more
subsidy from government or having more employees increase their
productivity more
than others. For macro controls, firms are more productive in
more concentrated
industries. It is because the productivity may be driven by
reallocating resources to
more efficient firms through firm turnover or the increase of
incumbents’ productivity
in the whole industry. Finally, the human capital and foreign
investment of a province
also help to promote firms’ TFP.
In sum, we find that finance depth cannot promote firm TFP,
while allocating
more credit to non-SOEs does enhance firm TFP significantly. It
indicates that a better
credit allocation rather than just increasing the size of credit
market is an important
way to enhance Chinese firms’ TFP.
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
20
4.3. Robustness check
In this section, we will test whether our main results are
robust to the specification
of clustering standard errors, different samples, and the
potential endogenous
problems.
4.3.1. Cluster standard errors at industry and province level,
respectively
In our main analysis we cluster the standard errors at
industry-province level,
since the local governments have much discretion in enforcing
the industry policy
according to their localities which may generate the substantial
variations across
provinces within an industry. Nonetheless, as a robustness
check, we recalculate the
standard errors by clustering at industry and province level,
respectively, in Table 5.
As shown in Table 5, no matter clustering standard errors at
industry or province level,
the significance of financial depth and credit allocation have
no essential changes
compared to our previous estimations. This suggests that our
findings are robust to the
different specification of clustered standard errors.
4.3.2. Different subsamples
4.3.2.1. The sample without SOEs
Since credit allocation represents the credit allocated to
non-SOEs relative to total
credit, non-SOEs are expected to benefit. In our main analysis
we utilize the full
sample, including SOEs and non-SOEs, to examine the role of
credit allocation on
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
21
firm TFP, which may underestimate the positive effects of credit
allocation. To check
this, we re-estimate the relationship between credit allocation
and firm TFP by
including non-SOEs only. To be consistent with our previous
analysis, in this
sub-section we also re-test the association between financial
depth and firm TFP
without SOEs, and to check whether the size of credit market
indeed has non-positive
effects on non-SOEs. The results are presented in columns (1)
and (2) in Table 6.
Our results show that although the magnitudes of the
coefficients (in absolute value)
on the key independent variables become mildly large compared
with their
counterparts in Table 3 and Table 4, we continue to find an
insignificant impact of
financial depth on firm TFP and a positive and significant
effect of credit allocation
on firm TFP.
4.3.2.2. The sample after China’s entry into WTO
As we mentioned in Section 2, after China’s entry into WTO in
2001, the financial
system went through several reforms. Therefore one may wonder
whether our earlier
results still hold after this big event. To check this, we only
keep the sample after
China’s entry into WTO, and the results are reported in columns
(3)-(4) in Table 6. As
shown in these two columns in Table 6, the coefficient on credit
allocation becomes
larger. This suggests that after China’s entry into WTO, credit
allocation plays a more
important role in firms’ performance improvement.
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
22
4.3.2.3. The sample of firms without id change
In our sample, some firms’ id codes change over time. As argued
by Brandt et al.
(2012), these changes are often due to restructuring. Since
these unusual activities
tend to affect firms’ productivity, one may concern whether our
results are driven by
firms’ restructuring. To tackle this problem, we delete the
firms with id changes over
our sample period. The results are demonstrated in columns (5)
and (6) in Table 6. As
shown in the last two columns of Table 6, the results are
consistent with our previous
findings.
4.3.3. Further discussion of the potential endogenous
problems
4.3.3.1. IV method
In this subsection, we use the IV method to address the
potential endogeneity
problem and further check the robustness of our results.
Specifically, we find an IV
for our key explanatory variables to re-estimate model (1). As
the increasing
economic intgration in China’s economy, financial sector in each
province becomes
closely connected to each other. Thus, financial sector in one
location is inevitably
affected by the changes of financial sectors in other locations
and it is normally
affected by large economies more. Meanwhile, the behavior of
financial sectors in
other locations is not likely to be correlated with unobserved
factors which affect the
TFP of local firms. This is because bank branches in China are
discouraged from
lending to firms in other provinces to minimize overlapping
competition (Qian &
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
23
Yeung, 2015). Therefore, we adopt the GDP-weighted average of
size of credit market
of other provinces as the instrument variable (IV) for financial
depth. The same
approach is used to construct the IV for credit allocation.
Afterwards, we adopt the
extended 2-stage-least-squares (2SLS) method to re-estimate
equation (1). The results
are reported in columns (1)-(2) in Table 7.
In each column of columns (1) and (2) in Table 7, the F-test of
excluded
instruments in the first-stage has a value substantially higher
than the critical value 10
suggested by Staiger and Stock (1997) for the strong
instruments, indicating that our
proposed instrument is both relevant and strong. The results
show that the magnitudes
of coefficients (in absolute value) on financial depth and
credit allocation are
moderately lager than our previous results. However, their
significance doesn’t
change, suggesting our main findings are quite robust.
Geographically, the mainland China is divided into 7 regions. 12
Due to
geographical vicinity, the financial environment of the
provinces in the same region
may be much more similar to each other than that of the
provinces in other regions.
As we have argued before, the behavior of financial sectors in
other locations is not
likely to be correlated with unobserved factors which affect the
TFP of local firms.13
Therefore, the GDP-weighted average of credit allocation (size
of credit market) of
other provinces in the same regions is also a potential
instrument for credit allocation
(financial depth). The values of F-test of excluding the
instrument are 34.72 for credit
12 The 7 regions are east China, central China, north China,
south China, east and north China, west and south China, and west
and north China. 13 Please see the first paragraph in Section
4.3.3.1 for the detail.
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
24
allocation and 119.03 for financial depth, indicating that these
instruments are
statistically valid. The results are presented in columns
(3)-(4) in Table 7. Our results
continue to robust.
4.3.3.2. GMM method
Although the endogeneity problem of our key explanatory
variables (financial
depth and credit allocation) is not a big issue, one may concern
the endogeneity of our
control variables, especially the firm-level controls. For
instance, some firm-level
variables (e.g. employment and export behavior) are likely to be
highly persistent,
thus the one-year lagged controls may be endogenous. Since it is
difficult to find the
external instruments for those controls, one possible way to
tackle this concern is
adopting the Generalized Method of Moments (GMM) estimation
method with their
2-year lagged values as instruments. To make our estimation more
consistent, we also
use the 2-year lagged values of financial depth and credit
allocation as instruments for
our key explanatory variables respectively. The regressions
estimated by the two-step
efficient GMM method are listed in columns (1)-(2) in Table
8.
As explained above, the F-test of excluded instruments in the
first-stage shows that
our proposed instruments are both relevant and strong. And we
still find that firm TFP
does not response to financial depth but it is positively
influenced by credit allocation.
Those results imply that the potential endogenous problems do
not drive our main
findings and if it does, it causes a bias on our estimation
downwards at the most since
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
25
the magnitudes of coefficients become larger.
4.3.3.3. Industry-year fixed effects
In our baseline estimations, we tackle the endogenous problems
mainly by
controlling for many firm-, industry- and province-level
observed time-variant and
unobserved time-invariant factors. In order to further check the
robustness of our
results, we include the industry and year fixed effect which
captures the time-variant
characteristics of each industry.14 The results are presented in
columns (3)-(4) in
Table 8, which are consistent with our earlier results.
5. Heterogonous effects
Since firms are different in individual characteristics as well
as industrial
characteristics, the positive impacts of credit allocation on
firm TFP may vary across
firms and industries. For instance, firms more dependent on
external finance are
largely affected by credit market development (Cetorelli &
Gambera, 2001; Hsu et al.,
2014). It is because credit market development may increase
firms’ access to external
finance and reduce their financing costs. Due to the
availability of firm-level data, we
can further explore the heterogeneous impacts by introducing the
interactions between
credit allocation and the measures of firm as well as industry
heterogeneity. The
analysis of heterogeneous impacts helps to show the
micro-economic foundations
through which credit allocation generates positive effects on
average firm TFP. Next
we will examine whether subsidy to firms, firm size, external
financial dependence of
14 Here, we cannot include province and year fixed effect in our
estimation, since our key explanatory variables are by province and
year.
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
26
industries, and labor intensity of industries matter for the
relationship between credit
allocation and firm TFP.
5.1. Subsidy
The existing studies have provided evidences that subsidy from
governments
plays an important role in firm performance. For example,
Hyytinen and Toivanen
(2005) document that the subsidy from government helps firms
raising capital from
external sources at lower costs, and thus it disproportionately
benefits firms in
industries more dependent on external finance. Bronzini and
Piselli (2016) also find
that R&D subsidy program implemented in a region of northern
Italy in the early
2000s had a significant impact on firm innovation. Therefore, it
is reasonable to
expect that firms obtaining more subsidy from government would
be less sensitive to
credit allocation, since the subsidy revenue mitigates their
dependence on other
sources of external finance for engaging in TFP-improving
activities, such as R&D.
To check this, we introduce an interaction between credit
allocation and the firm-level
subsidy from government measured by subsidy ratio to our
baseline estimation, and
present the result in column (1) in Table 9.
As shown in column (1) in Table 9, the coefficient on
interaction is negative and
significant at the 1% level, suggesting that credit allocation
has a smaller impact on
firms with more subsidies, which is consistent with our
expectation. This finding
indicates that credit allocation is mainly through improving the
productivity of firms
with less government financial support to promote the average
TFP of Chinese firms.
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
27
5.2. Size
It is widely known that small firms are more financially
constrained due to their
more limited access to the credit market (Beck et al., 2005).
However, small firms
play an important role in driving China’s rapid economic growth
in recent years(Lin
et al., 2015). Therefore, improving TFP of small firms would
contribute more on
upgrading the supply quality of total manufacturing and
retaining the rapid growth of
China’s economy. Since the majority of small firms are non-SOEs,
we expect that the
increase of credit to non-SOEs or credit allocation may
disproportionately benefit
those small firms more than the large firms. To see this, we
adopt the classification of
firm size from ASIF, which divides firms into three groups:
small, medium-sized, and
large firms, according to their sales revenue. In our sample,
more than 78% of firms
are small firms, and about 15% of firms are medium-sized firms,
while only about 7%
of firms are large firms. We introduce two interactions in our
baseline regression: one
is the interaction between credit allocation and a dummy for
small firms; the other is
the interaction between credit allocation and a dummy for large
firms. The result is
reported in column (2) in Table 9.
In the second column of Table 9, the coefficient on the
interaction between credit
allocation and the dummy for small firms is significantly
positive, while that on the
interaction between credit allocation and the dummy for large
firms is significantly
negative. This result suggests that credit allocation promotes
TFP of small firms more
but large firms less, which is in line with our expectation. Our
finding implies that
allocating more credit to non-SOEs mainly relaxes the financial
constraints of small
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
28
firms which help to increase their TFP, resulting in the
enhancement of the average
TFP of Chinese firms.
5.3. External financial dependence
Firms heavily dependent on external finance are supposed to
respond more to the
increase of external financial resources, since they have more
access to external
finance with low costs, especially for non-SOEs which are hard
to get support from
the credit market. Therefore, we further check whether credit
allocation impacts more
on firms which heavily depend on external finance.
Here, we adopt the leverage ratio, measured by the total debts
to total assets, as a
proxy of external financial dependence. Berman and Héricourt
(2010) argue that the
leverage ratio can be interpreted as both a measure of the
firms’ lack of collateral and
of the firms’ current demand for borrowing relative to its
capacity to borrow. It is
worth noting that unlike in previous subsections, here we cannot
directly introduce an
interaction between firm-level leverage ratio and credit
allocation to test the
hypothesis due to the potential endogenous concern. For example,
managers facing
poor growth opportunities choose high levels of leverage or
increases in firms’
leverage may also reflect a response to unobserved variation in
investment
opportunities (Desai et al., 2008). To tackle this issue, we
construct a measure of
external financial dependence from the leverage ratio at 2-digit
industry level
(Manova, 2013). Specifically, we first compute the leverage
ratio for each industry.15
15 The measure is averaged over 1999-2007 for the median firm in
each industry (Manova, 2013).
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
29
If an industry has leverage ratio above (or below) median level,
it is classified as a
high (or low) external financial dependence industry. Firms in
an industry with high
external financial dependence are more likely to heavily depend
on external finance.
Then we construct a dummy variable for firms in the high
financial dependence
industry,16 and introduce an interaction between credit
allocation and this dummy in
column (3) in Table 9.
The result in column (3) lends strong support to our prediction
that firms in the
industry with high external financial dependence are more
affected by credit
allocation. This finding is consistent with the existing studies
(Cetorelli & Gambera,
2001; Hsu et al., 2014).
5.4. Labor intensity
Song et al. (2011) develop a model showing that financially
constrained firms
with high TFP will specialize in labor-intensive activities.
They further show that in
China, where young high-productivity non-SOEs have entered
extensively into
labor-intensive sector, while old SOEs continue to dominate
capital-intensive sector.
From this perspective, if allocating more credit to non-SOEs,
firms in labor-intensive
sector may have more access to financial resources, since more
than 90% of
non-SOEs in our sample is in labor-intensive sector. Hence, we
expect that firms in
labor-intensive sector respond more to credit allocation than
those in capital-intensive
sector.
16 The dummy is equal one if the firm is in an industry with
leverage ratio above median level, zero otherwise.
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
30
To see this, we divide firms into two types: firms in
labor-intensive industries and
those in capital intensive industries. Specifically, we compute
the labor-capital ratio
for each industry over 1999-2007,17 if the labor-capital ratio
of an industry is above
median level, it is classified as a labor-intensive industry, as
a capital-intensive
industry otherwise. Next, we construct a dummy variable for
firms in the
labor-intensive industry and introduce the interaction between
credit allocation and
this dummy in our baseline estimation.18 The result is reported
in column (4) in Table
9.
As shown in the last column of Table 9, the coefficient on the
interaction is
positive and significant at 1% level, suggesting that firms in
labor-intensive industries
are more sensitive to credit allocation. This finding is in line
with Lin et al. (2015)
who argue that labor-intensive industries grow faster than
capital-intensive industries
in provinces with more active small banking institutions.
6. Conclusion
In this paper, we have investigated the role of size of credit
market and credit
allocation in firm TFP enhancement using firm-level panel data
from Chinese
manufacturing firms. Our results show that financial depth or
the size of credit market
has no significant effects on firm TFP, while allocating more
credit to non-SOEs
contributes to the enhancement of firm TFP. This finding
indicates that the
misallocation of financial resources indeed generates
productivity loss, and a better
17 The measure is averaged over 1999-2007 for the median firm in
each industry. 18 Similar to the analysis of external financial
dependence, we cannot introduce an interaction between firm-level
labor-capital ratio and credit allocation to our regression
directly due to the endogenous concern that financially constrained
firms with high TFP will choose to engage in the labor-intensive
activities (Song et al., 2011).
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
31
credit allocation is one primary way to improve firm
performance. We further find
that credit allocation works differently across firms as well as
industries. Specifically,
firms having less subsidy from governments, with small size, in
industry with high
external financial dependence, and in industry with
labor-intensity benefit more from
allocating more credit to non-SOEs.
Nowadays, upgrading the quality of supply has attracted much
more attention in
China. Improving firm productivity is seen as an important
approach to realize this
goal. Therefore, one most important policy implication of our
work is that currently,
allocating more credit to the non-SOEs relative to SOEs can
promote Chinese firms’
TFP which helps to improve the supply quality. This is because
the Chinese non-SOEs
are more efficient but more financially constrained than SOEs.
Credit to non-SOEs
works more efficiently than that to SOEs in enhancing firms’
TFP.
Our work also implies that for emerging economies to grow, one
of the most
important things is to allocate credit to the more efficient but
financially constrained
sector.
References:
Allen, F., Qian, J., and M. Qian. “Law, finance, and economic
growth in China.”
Journal of Financial Economics, 2005, 77: 57-116.
Amore, M. D., Schneider, C., and A. Žaldokas. “Credit supply and
corporate innovation.”
Journal of Financial Economics, 2013, 109: 835-855.
Bai, C. E., Lu, J., and Z. Tao. “The multitask theory of state
enterprise reform:
Empirical evidence from China.” American Economic Review, 2006,
96:
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
32
353-357.
Benhabib, J., and M. M. Spiegel. “The role of financial
development in growth and
investment.” Journal of Economic Growth, 2000, 5: 341-360.
Beck, T., Demirgüç-Kunt, A., and V. Maksimovic. “Financial and
legal constraints to
growth: does firm size matter?.” The Journal of Finance, 2005,
60(1): 137-177.
Bronzini, R., and P. Piselli. “The impact of R&D subsidies
on firm innovation.”
Research Policy, 2016, 45(2): 442-457.
Berman, N., and J. Héricourt. “Financial factors and the margins
of trade: evidence
from cross-country firm-level data.” Journal of Development
Economics, 2010,
93(2): 206-217.
Brandt, L., and H. B. Li. “Bank discrimination in transition
economies: ideology,
information, or incentives?.” Journal of Comparative Economics,
2003, 31: 387–
413.
Brandt, L., Van Biesebroeck, J., and Y. Zhang. “Creative
accounting or creative
destruction? firm-level productivity growth in Chinese
manufacturing.” Journal
of Development Economics, 2012, 97(2): 339-351.
Buera, F., Kaboski, J.P., and Y. Shin. “Finance and development:
a tale of two sectors.”
American Economic Review, 2009, 101:1964-2002.
Chen, H. “Development of financial intermediation and economic
growth: the
Chinese experience.” China Economic Review, 2006, 17:
347–362.
Chen, M., and A. Guariglia. “Internal financial constraints and
firm productivity in
China: do liquidity and export behavior make a difference?.”
Journal of
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
33
Comparative Economics, 2013, 41(4): 1123-1140.
Cetorelli, N., and M. Gambera. “Banking market structure,
financial dependence and
growth: International evidence from industry data.” The Journal
of Finance,
2001, 56(2): 617-648.
Cull, R., Xu, L.C., and T. Zhu. “Formal finance and trade credit
during China’s
transition.” Journal of Financial Intermediation, 2009, 18:
173-192.
Desai, M. A., Foley, C. F., and K. J. Forbes. “Financial
constraints and growth:
Multinational and local firm responses to currency
depreciations.” Review of
Financial Studies, 2008, 21(6): 2857-2888.
Erosa, A., and A. Hidalgo-Cabrillana. “On capital market
imperfections as a source of
low TFP and economic rents.” Working paper, 2007.
Fan, G., Wang, X., and H. P. Zhu. “NERI index of marketization
of China’s provinces.”
Economics Science Press, 2011, Beijing. (in Chinese).
Firth, M., Lin, C., and P. Liu., et al. “Inside the black box:
Bank credit allocation in
China’s private sector.” Journal of Banking & Finance, 2009,
33: 1144-1155.
Foster, L., Haltiwanger, J., and C. Syverson. “Reallocation,
firm turnover, and
efficiency: Selection on productivity or profitability.”
American Economic
Review, 2008, Vol.98, No.1: 394-495.
Gatti, R., and I. Love. “Does access to credit improve
productivity? Evidence from
bulgaria1.” Economics of Transition, 2008, 16(3): 445-465.
Guariglia, A., and S. Poncet. “Could financial distortions be no
impediment to
economic growth after all? Evidence from China.” Journal of
Comparative
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
34
Economics, 2008, 36: 633-657.
Guillaumont-Jeanneney, S., Hua, P., and Z. Liang. “Financial
development, economic
efficiency, and productivity growth: Evidence from China.” The
Developing
Economies, 2006, 44(1): 27-52.
Han, J., and Y. Shen. “Financial development and total factor
productivity growth:
Evidence from China.” Emerging Markets Finance and Trade, 2015,
51(sup1):
S261-S274.
Hsieh, C. T., and P. J. Klenow. “Misallocation and manufacturing
TFP in China and
India.” Quarterly Journal of Economics, 2009124 (4):
1403-48.
Hsu, P. H., Tian, X., and Y. Xu. “Financial development and
innovation:
Cross-country evidence.” Journal of Financial Economics, 2014,
112(1):
116-135.
Hyytinen, A., and O. Toivanen. “Do financial constraints hold
back innovation and
growth?: Evidence on the role of public policy.” Research
Policy, 2005, 34(9):
1385-1403.
Jeong, H., and R. M. Townsend. “Sources of TFP growth:
occupational choice and
financial deepening.” Economic Theory, 2007, 32(1): 179-221.
King, R.G., and R. Levine. “Finance and growth: Schumpeter might
be right.” The
Quarterly Journal of Economics, 1993(a), 108: 717-737.
King, R.G., and R. Levine. “Finance, entrepreneurship and
growth.” Journal of
Monetary Economics, 1993(b), 32 (3): 513-542.
Krishnan, K., Nandy, D. K., and M. Puri. “Does financing spur
small business
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
35
productivity? Evidence from a natural experiment.” Review of
Financial Studies,
2015, 28(6): 1768-1809.
Levinsohn, J., and A. Petrin. “Estimating production functions
using inputs to control
for unobservables.” The Review of Economic Studies, 2003, 70(2):
317-341.
Liang, Q., and J. Z. Teng. “Financial development and economic
growth: Evidence
from China.” China Economic Review, 2006, 17: 395–411.
Lin, H. D. “Foreign bank entry and firms’ access to bank credit:
Evidence from China.”
Journal of Banking & Finance, 2011, 35: 1000–1010.
Lin, J. Y., Sun, X., and H. X. Wu. “Banking structure and
industrial growth: Evidence
from China.” Journal of Banking & Finance, 2015, 58:
131-143.
Liu, Q., and L.D. Qiu. “Intermediate input imports and
innovations: Evidence from
Chinese firms’ patent filings.” Journal of International
Economics, 2016,
103:166-183.
Manova, K. “Credit constraints, heterogeneous firms, and
international trade.” The
Review of Economic Studies, 2013, 80(2): 711-744.
Manova, K., Wei, S. J., and Z. Zhang. “Firm exports and
multinational activity under
credit constraints.” Review of Economics and Statistics, 2015,
97(3): 574-588.
Melitz, M. J. “The impact of trade on intra-industry
reallocations and aggregate
industry productivity.” Econometrica, 2003, 71(6):
1695-1725.
Nucci, F., Pozzolo, A., and F. Schivardi. “Is firm’s
productivity related to its financial
structure? Evidence from microeconomic data.” Rivista di
Politica Economica,
2005, 95(1): 269-290.
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
36
Olley, G. S., and A. Pakes. “The dynamics of productivity in the
telecommunications
equipment industry.” Econometrica, 1996, 64 (6):1263-1297.
Ouyang, P., Zhang, T., and Y. Dong. “Market potential, firm
exports and profit: Which
market do the Chinese firms profit from?” China Economic Review,
2015, 34:
94-108.
Poncet, S., Steingress, W., and H.Vandenbussche. “Financial
constraints in China: Fir
m-level evidence.” China Economic Review, 2010, 21: 411–422.
Qian, J., Strahan, P. E., and Z. Yang. “The impact of incentives
and communication
costs on information production and use: Evidence from bank
lending.” Journal
of Finance, 2015 70(4):1457–1493.
Qian, M., and B.Y. Yeung. “Bank financing and corporate
governance.” Journal of
Corporate Finance, 2015, 32:258-270.
Rajan, R. G., and L. Zingales. “Financial dependence and
growth.” The American
Economic Review, 1998, 88: 559–586.
Restuccia, D., and R. Rogerson. “Policy distortions and
aggregate productivity with
heterogeneous establishments.” Review of Economic Dynamics,
2008,
11(4):707-720.
Roberts, M. J., Xu, D. Y., and X. Fan., et al. “A structural
model of demand, cost, and
export market selection for Chinese footwear producers.” NBER
working paper,
paper series, 2012: 17725.
Stein, J. “Information production and capital allocation:
Decentralized versus
hierarchical firms.” Journal of Finance, 2002, 57:
1891-1921.
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
37
Staiger, D., and J. H. Stock. “Instrumental variables regression
with weak
instruments.” Econometrica, 1997, 65: 557-586.
Song, Z., Storesletten, K., and F. Zilibotti. “Growing like
China.” The American
Economic Review, 2011,101(1): 196-233.
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
38
Fig. 1. The average firm TFP of SOEs and non-SOEs from 1999 to
2007
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
39
Fig. 2. The average firm TFP and credit allocation from 1999 to
2007
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
40
Table1 Variable definition.
Variable Definition
Dependent variable:
Firm TFP estimated by the Levinsohn and Petrin (2003) method
Independent variables:
Financial depth (total credit/GDP) of each province
Credit allocation index constructed from (credit to
non-SOEs/total credit) of each
Control variables:
SOE equals one if a firm is SOE, zero otherwise
Exporter equals one if a firm has exports in the current year,
zero otherwise
Employment (log of the number of employees) of each firm
Subsidy ratio (subsidy revenue/total assets) of each firm
HHI (Herfindahl
-Hirschman Index)
= ∑ ( / ) , where denotes firm ’s sales in year , denotes the
total sales of each industry in
GDP per capita (log of GDP per capita) of each province
Human capital (college or above graduates/ total population) of
each province
FDI (the stock of foreign direct investment/GDP) of each
province
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
41
Table 2 Descriptive statistics.
Variable Obs Mean St.dev Min Max
Dependent variable:
Firm TFP 990,387 4.86 2.96 0.13 17.41
Independent variables:
Financial depth 990,387 0.99 0.28 0.56 2.42
Credit allocation 990,387 8.22 3.16 0 14.03
Control variables:
SOE 990,387 0.1 0.3 0 1
Exporter 990,387 0.29 0.45 0 1
Employment 990,387 4.88 1.11 2.08 12.02
Subsidy ratio 990,387 0.002 0.1 0 0.08
HHI (Herfindahl-Hirschman Index) 990,387 0.003 0.004 0.0003
0.04
GDP per capita 990,387 9.59 0.57 7.84 10.87
Human capital 990,387 0.11 0.04 0.01 0.28
FDI 990,387 4.01 2.37 0.06 11.4
Note:Firm TFP is winsorized at the 1% level.
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
42
Table 3 The impact of financial depth on firm TFP.
Dependent variable Firm TFP
(1) (2) (3)
Financial depth -0.0636* -0.0041 -0.0108
(0.0359) (0.0193) (0.0181)
SOE -0.0350*** -0.0321***
(0.0047) (0.0045)
Exporter 0.0251*** 0.0246***
(0.0030) (0.0028)
Employment 0.0650*** 0.0665***
(0.0026) (0.0025)
Subsidy ratio 0.2890*** 0.2700***
(0.0479) (0.0497)
HHI 3.1310**
(1.4300)
GDP per capita 0.0732
(0.0583)
Human capital 0.6840***
(0.1240)
FDI 0.0024*
(0.0014)
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
43
Year fixed effects no yes yes
Firm fixed effects yes yes yes
Constant 4.9200*** 4.5080*** 3.7110***
(0.0357) (0.0278) (0.5570)
Observations 990,387 990,387 990,387
R-squared 0.0010 0.0560 0.0580
Note: As the firm’s location (by province) and industry do not
change during the sample period, firm
fixed effects also capture the industry and province fixed
effects. Robust standard errors are clustered at
industry-province level. Robust standard errors in parentheses,
*** p
-
Acce
pted M
anus
cript
44
Table 4 The impact of credit allocation on firm TFP.
Dependent variable Firm TFP
(1) (2) (3) (4)
Credit allocation 0.0180*** 0.0020** 0.0031*** 0.0031***
(0.0014) (0.0009) (0.0008) (0.0008)
SOE -0.0352*** -0.0322*** -0.0321***
(0.0047) (0.0045) (0.0046)
Exporter 0.0249*** 0.0243*** 0.0243***
(0.0029) (0.0027) (0.0028)
Employment 0.0649*** 0.0664*** 0.0664***
(0.0026) (0.0025) (0.0025)
Subsidy ratio 0.2880*** 0.2670*** 0.2620***
(0.0476) (0.0492) (0.0495)
HHI 3.0780** 3.0840**
(1.4200) (1.4210)
GDP per capita 0.0688 0.0702
(0.0577) (0.0604)
Human capital 0.7260*** 0.7190***
(0.1270) (0.1280)
FDI 0.0028* 0.0028*
(0.0014) (0.0015)
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
45
Non-SOE ratio 0.0082
(0.0407)
Year fixed effects no yes yes yes
Firm fixed effects yes yes yes yes
Constant 4.7080*** 4.6110*** 3.7750*** 3.7550***
(0.0111) (0.0146) (0.5760) (0.6130)
Observations 990,387 990,387 990,387 990,065
R-squared 0.0190 0.0560 0.0580 0.0580
Note: As the firm’s location (by province) and industry do not
change during the sample period, firm
fixed effects also capture the industry and province fixed
effects. Robust standard errors are clustered at
industry-province level. Robust standard errors in parentheses,
*** p
-
Acce
pted M
anus
cript
46
Table 5 Cluster standard errors at industry and province level,
respectively.
Dependent variable Firm TFP
Cluster standard errors at industry
level
Cluster standard errors at
province level
(1) (2) (3) (4)
Financial depth -0.0108 -0.0108
(0.0129) (0.0317)
Credit allocation 0.0031*** 0.0031**
(0.0003) (0.0014)
Controls yes yes yes yes
Year fixed effects yes yes yes yes
Firm fixed effects yes yes yes yes
Constant 3.7110*** 3.7750*** 3.7110*** 3.7750***
(0.3160) (0.3080) (1.0750) (1.0950)
Observations 990,387 990,387 990,387 990,387
R-squared 0.0580 0.0580 0.0580 0.0580
Note: As the firm’s location (by province) and industry do not
change during the sample period, firm
fixed effects also capture the industry and province fixed
effects. Robust standard errors are clustered at
industry level in columns (1)-(2), and at province level in
columns (3)-(4). Robust standard errors in
parentheses, *** p
-
Acce
pted M
anus
cript
47
Table 6 Different subsamples.
Dependent
variable
Firm TFP
Sample without SOEs Sample after China’s
entry into the WTO
Sample of firms without
id change
(1) (2) (3) (4) (5) (6)
Financial depth -0.0243 -0.0157 0.0015
(0.0200) (0.0208) (0.0174)
Credit allocation 0.0033*** 0.0162*** 0.0030***
(0.0008) (0.0022) (0.0008)
Controls yes yes yes yes yes yes
Year fixed
effects
yes yes yes yes yes yes
Firm fixed
effects
yes yes yes yes yes yes
Constant 3.7140*** 3.7780*** 3.2290*** 3.3180*** 3.6090***
3.6980***
(0.5890) (0.6100) (0.5690) (0.5610) (0.5730) (0.5930)
Observations 894,643 894,643 828,065 828,065 873,577 873,577
R-squared 0.0700 0.0700 0.0530 0.0550 0.0530 0.0540
Note: As the firm’s location (by province) and industry do not
change during the sample period, firm
fixed effects also capture the industry and province fixed
effects. Robust standard errors are clustered at
industry-province level. Robust standard errors in parentheses,
*** p
-
Acce
pted M
anus
cript
48
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
49
Table 7 IV estimation.
Dependent variable Firm TFP
GDP-weighted average of other
provinces in the whole country
GDP-weighted average of
other provinces in the same
regions
(1) (2) (3) (4)
Financial depth -0.0532 0.1080
(0.0374) (0.0667)
Credit allocation 0.0037*** 0.0041*
(0.0010) (0.0025)
F test of excluded
instruments
1199.23 2021.45 119.03 34.72
Controls yes yes yes yes
Year fixed effects yes yes yes yes
Firm fixed effects yes yes yes yes
Observations 990,387 990,387 990,387 990,387
R-squared 0.0580 0.0580 0.0560 0.0580
Note: The regressions are estimated by the extended two-stage
least squares (2SLS) model which does
not report a constant with the fixed effects model controlling
for firm fixed effects. Robust standard
errors are clustered at industry-province level. Robust standard
errors in parentheses, *** p
-
Acce
pted M
anus
cript
50
Table 8 Other discussions of the potential endogenous
problems.
Dependent variable Firm TFP
GMM estimation Industry-year fixed effect
(1) (2) (3) (4)
Financial depth 0.0683 -0.0324
(0.4690) (0.0510)
Credit allocation 0.0313*** 0.0036***
(0.0022) (0.0005)
F test of excluded instruments 3680.07 4925.51
Controls yes yes yes yes
Year fixed effects yes yes yes yes
Firm fixed effects no no yes yes
Industry-year fixed effects no no yes yes
Constant -0.7640 1.0500*** 3.9452*** 4.0029***
(4.0630) (0.1180) (0.4006) (0.4163)
Observations 748,893 748,893 990,387 990,387
R-squared 0.0580 0.0590 0.0673 0.0676
Note: The regressions in columns (1)-(2) are estimated by the
two-step efficient GMM method with the
2-year lagged values as instruments of explanatory variables.
Robust standard errors are clustered at
industry-province level. Robust standard errors in parentheses,
*** p
-
Acce
pted M
anus
cript
51
Table 9. The heterogeneous effects of credit allocation on firm
TFP.
Dependent variable Firm TFP
(1) (2) (3) (4)
Credit allocation 0.0032*** 0.0020** 0.0005 0.0008
(0.0008) (0.0009) (0.0009) (0.0010)
Credit allocation × Subsidy ratio −0.0330**
(0.0131)
Credit allocation × Small firm 0.0015**
(0.0006)
Credit allocation × Large firm −0.0014**
(0.0006)
Credit allocation × High external 0.0069***
financial dependence (0.0014)
Credit allocation × Labor intensive 0.0064***
(0.0017)
Control variables yes yes yes yes
Year fixed effects yes yes yes yes
Firm fixed effects yes yes yes yes
Constant 3.7800*** 3.9010*** 3.7650*** 3.8770***
(0.5750) (0.5710) (0.5520) (0.5580)
Observations 990,387 990,387 990,387 990,387
R-squared 0.0580 0.0620 0.0590 0.0590
Note: As the firm’s location (by province) and industry do not
change during the sample period, firm
fixed effects also capture the industry and province fixed
effects. Robust standard errors are clustered at
industry- province level. “Small firm” is a dummy for the small
firms, and “Large firm” is a dummy for
the large firms. “High external financial dependence” is a dummy
which equals one if the firm is in an
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
Acce
pted M
anus
cript
52
industry with leverage ratio above median level, zero otherwise.
“Labor intensive” is a dummy which
equals one if the firm is in an industry with labor-capital
ratio above median level, zero otherwise.
Robust standard errors in parentheses, *** p < 0.01, ** p
< 0.05, and * p < 0.1.
Dow
nloa
ded
by [
Uni
vers
ity o
f Fl
orid
a] a
t 04:
56 1
1 Ja
nuar
y 20
18
-
本文献由“学霸图书馆-文献云下载”收集自网络,仅供学习交流使用。
学霸图书馆(www.xuebalib.com)是一个“整合众多图书馆数据库资源,
提供一站式文献检索和下载服务”的24 小时在线不限IP
图书馆。
图书馆致力于便利、促进学习与科研,提供最强文献下载服务。
图书馆导航:
图书馆首页 文献云下载 图书馆入口 外文数据库大全 疑难文献辅助工具
http://www.xuebalib.com/cloud/http://www.xuebalib.com/http://www.xuebalib.com/cloud/http://www.xuebalib.com/http://www.xuebalib.com/vip.htmlhttp://www.xuebalib.com/db.phphttp://www.xuebalib.com/zixun/2014-08-15/44.htmlhttp://www.xuebalib.com/
Credit Allocation and Firm Productivity Under Financial
Imperfection: Evidence from Chinese Manufacturing
Firms学霸图书馆link:学霸图书馆