Financing development, financing constraint and R&D investment of strategic emerging industries in China
Abstract
Taking listed companies of strategic emerging industries as the research subject, this paper uses KZ index to measure the degrees of financing constraints and financial intermediary as well as the stock market to represent the level of financial development. Then empirical models are constructed to analyse whether financial development can alleviate the financing constraints of R&D investment or not. Finally, the paper further investigates the interaction of financial development and firm characteristics (including firm size, ownership nature and establishment time) on the impact of R&D investment. The results show that the degree of financing constraint is negatively correlated with R&D investment. Both the development of financial intermediary and stock market play an important role in alleviating the R&D financing constraints, and the development of the stock market can better alleviate the R&D financing constraint. Moreover, the development of financial intermediary and stock market plays a heterogeneous role among enterprises of different size, nature and time of establishment. In order to achieve the 13th Five-year Plan target of strategic emerging industries in China, the government and enterprises need to work together to improve the financial development level and reduce information asymmetry, so as to expand the investment channels of R&D investment and improve their innovation capability and competitiveness.
Keyword : financing development, financial intermediary, stock market, financing constraints, KZ index, R&D investment, strategic emerging industries
How to Cite
Xu, K., Geng, C., Wei, X., & Jiang, H. (2020). Financing development, financing constraint and R&D investment of strategic emerging industries in China. Journal of Business Economics and Management, 21(4), 1010-1034. https://doi.org/10.3846/jbem.2020.12727
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Guariglia, A., & Liu, P. (2014). To what extent do financing constraints affect Chinese firms’ innovation activities? International Review of Financial Analysis, 36(C), 223–240. https://doi.org/10.1016/j.irfa.2014.01.005
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Kaplan, S. N., & Zingales, L. (1997). Do investment-cash flow sensitivities provide useful measures of financing constraints? Quarterly Journal of Economics, 112(1), 169–215. https://doi.org/10.1162/003355397555163
Kuang, X. W. (2011). Does financial development reduce the firm’s financial constraints? East China Economic Management, 25(5), 74–79.
Laeven, L. (2003). Does financial liberalization reduce financing constraints? Financial Management, 32(1), 5–34. https://doi.org/10.2307/3666202
Lamont, O., Polk, C., & Saaárequejo, J. (2001) Financial constraints and stock returns. Review of Financial Studies, 14(2), 529–554. https://doi.org/10.1093/rfs/14.2.529
Li, Y., & Zhang, T. (2009). Evaluation of financial ecological environment in China (2008–2009). China Finance Press.
Liu, H. D. (2014). Financial development, enterprise R&D financing constraint ease and total factor productivity growth: Empirical evidence from China’s industrial level. South China Finance, (1), 21–27. https://doi.org/10.3969/j.issn.1007-9041.2014.01.005
Liu, W. Q., He, Y. Q., & Zheng, Y. (2018). Financial deepening, financing constraint and enterprise’s R&D investment – an analysis from the perspective of industry heterogeneity. Jiangxi Social Sciences, 38(12), 215–224.
Liu, Y. H. (2007). Evaluation of financial ecological environment in China (2006–2007). China Finance Press.
Liu, Y. H., & Chen, X. S. (2011). Evaluation of financial ecological environment in China (2009–2010). Social sciences academic press, Beijing.
Love, I. (2003). Financial development and financing constraints: International evidence from the structural investment model. Review of Financial Studies, 16(3), 765–791. https://doi.org/10.1093/rfs/hhg013
Lu, X., Zheng, Y. F., & Li, J. M. (2013). Research on the influence of financing constraints on enterprise R&D investment – empirical evidence from China’s listed high-tech companies. Accounting Research, 5, 51–58. https://doi.org/10.3969/j.issn.1003-2886.2013.05.007
Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. The American Economic Review, 3, 261–297.
Sasidharan, S., Lukose, J., & Komera, S. (2015). Financing constraints and investments in R&D: Evidence from Indian manufacturing firms. The Quarterly Review of Economics and Finance, 55, 28–39. https://doi.org/10.1016/j.qref.2014.07.002
Song, J. B., Su, Z. H., & Nie, X. Q. (2018). Does development of financial markets help firm innovation? Evidence from China. Economic and Political Studies, 6(2), 194–208. https://doi.org/10.1080/20954816.2018.1463601
Wan, M. T. (2018). Empirical study on the relationship between financing constraints and R&D investment – based on empirical data of GEM listed companies. Management and Administration, 412(10), 53–56. https://doi.org/10.16517/j.cnki.cn12-1034/f.2018.10.015
Wang, X. L., Fan, G., & Yu, J. W. (2017). Report of market index of China’s provinces (2016). Social Sciences Academic Press.
Wei, F., & Liu, X. (2004). The impact of financing constraints, uncertainty on the corporate’s investment behavior. Economic Science, 26(2), 35–43.
Wei, Y. D., & Lan, Y. Z. (2019). Financial association and enterprise’s financing contract. Communication of Finance and Accounting, 36, 96–102. https://doi.org/10.16144/j.cnki.issn1002-8072.2019.36.019
Wei, Z. H., Zeng, A. M., & Li, B. (2014). Financial ecological environment and financing constraints – based on empirical research on Chinese listed companies. Accounting Research, 5, 73–80. https://doi.org/10.3969/j.issn.1003-2886.2014.05.009
Whited, T. M., & Wu, G. (2006). Financial constraints risk. Review of Financial Studies, 19(2), 531–559. https://doi.org/10.2139/ssrn.410816
Wu, J. (2019). Financing constraints for R&D in China: The role of state ownership. Applied Economics Letters, 26(14), 1162–1166. https://doi.org/10.1080/13504851.2018.1540839
Xie, W. M., & Fang, H. X. (2011). Financial development, financing constraint and enterprises R&D investment. Journal of Financial Research, 5, 171–183.
Yuan, L., & Xu, T. (2019). Does the financing mode affect the technological innovation of enterprisesempirical evidence from the world bank’s survey of Chinese enterprises. Journal of Macro-Quality Research, 7(3), 111–128. https://doi.org/10.13948/j.cnki.hgzlyj.2019.03.008
Zeng, Z. M., Wang, C. J., & Zhang, Q. (2017). The influence of financial development on financing constraints of China’s small and medium-sized listed companies. The Theory and Practice of Finance and Economics, 38(4), 15–20.
Zhai, S. P., & Gu, Q. (2013). Research on financial development, financial constraint and investment efficiency of high-tech enterprises. Economic Survey, 2, 138–143. https://doi.org/10.3969/j.issn.1006-1096.2013.02.026
Zhang, H. Y., & Wang, L. (2016). Financial development, financing constraints and the development of strategic emerging industries. Journal of Beijing Technology and Business University (Social Sciences), 1, 94–101. https://doi.org/10.16299/j.1009-6116.2016.01.011
Zhang, S. J. (2018). Research on the correlation between financing constraint and enterprise innovation input – from the perspective of combination of industry and finance. Communication of Finance and Accounting, 15, 109–113. https://doi.org/10.16144/j.cnki.issn1002-8072.2018.15.022
Zhu, D. P., & Sun, L. L. (2015). Financing constraints, market environment and R&D investment: an empirical research on listed companies of Chinese biological medicine industry. Science and Technology Management Research, 22, 98–102. https://doi.org/10.3969/j.issn.1000-7695.2015.22.019
Almeida, H., Campello, M., & Weisbach, M. S. (2004). The cash flow sensitivity of cash. Journal of Finance, 59(4), 1777–1804. https://doi.org/10.2139/ssrn.345840
Brown, J. R., Martinsson, G., & Petersen, B. C. (2011). Do financing constraints matter for R&D? European Economic Review, 56(8), 1512–1529. https://doi.org/10.2139/ssrn.1684731
Cao, X. F. (2014). Financing constraint and enterprise R&D investment – an empirical study based on enterprise data. Soft Science, 28(12), 73–78. https://doi.org/10.3969/j.issn.1001-8409.2014.12.017
Chen, K., & Chang, L. (2019). Research on the effectiveness of financing constraint measure of investment-cash flow sensitivity. Friends of Accounting, 23, 137–142. https://doi.org/10.3969/j.issn.1004-5937.2019.23.024
Chen, P., & Yang, M. (2018). Research on the impact of financing constraints on R&D investment of SMEs. Communication of Finance and Accounting, 26, 57–61. https://doi.org/10.16144/j.cnki.issn1002-8072.2018.26.014
Cheng, L., Wang, S., & Liu, Q. (2019). An economic analysis of financing constraints and corporate R&D manipulation. Finance & Trade Economics, 40(8), 67–82. https://doi.org/10.19795/j.cnki.cn11-1166/f.20190806.010
Cleary, S. (1999). The relationship between firm investment and financial status. The Journal of Finance, 54(2), 673–692. https://doi.org/10.1111/0022-1082.00121
Dai, X. Y., & Cheng, L. W. (2015). The influence mechanism of financial development on enterprise financing constraint and R&D investment. R&D Management, 27(3), 25–33. https://doi.org/10.3969/j.issn.1004-8308.2015.03.004
Farre-Mensa, J., & Ljungqvist, A. (2016). Do measures of financial constraints measure financial constraints? Review of Financial Studies, 29(2), 271–308. https://doi.org/10.2139/ssrn.2338575
Fazzari, S. M., Hubbard, R. G., Petersen, B. C., Blinder, A. S., & Poterba, J. M. (1988). Financing constraints and corporate investment. Brookings Papers on Economic Activity, 1988(1), 141–206. https://doi.org/10.2307/2534426
Geng, C. X., Li, M., & Hai-tao, E. (2018). Financing efficiency and financing constraints of new energy enterprises – based on the empirical analysis of A share new energy listed companies in China. East China Economic Management, 1, 153–159. https://doi.org/10.19629/j.cnki.34-1014/f.170805001
Gu, Q., & Zhai, S. P. (2014). Financial constraints, R&D investment and funding sources: The perspective of R&D heterogeneity. Science of Science and Management of S. & T., 35(3), 15–22.
Guariglia, A., & Liu, P. (2014). To what extent do financing constraints affect Chinese firms’ innovation activities? International Review of Financial Analysis, 36(C), 223–240. https://doi.org/10.1016/j.irfa.2014.01.005
Hall, B. H., & Lerner, J. (2010). The financing of R&D and innovation. Handbook of the Economics of Innovation, 1, 609–639. https://doi.org/10.1016/S0169-7218(10)01014-2
Hu, J., & Qin, L. (2013). Research on the influence of financial development on the restriction of enterprise R&D financing – empirical evidence from China’s listed high-tech companies. Journal of Hebei University of Economics and Business, 34(5), 59–62. https://doi.org/10.3969/j.issn.1007-2101.2013.05.010
Hu, J., Li, G., & Zhu, F. (2017) Regional financial developments and research and development investment-cash flow sensitivity: Evidence on Chinese public high-tech companies. International Review of Finance, 17, 627–642. https://doi.org/10.1111/irfi.12122
Hu, Y. R., Chen, D. D., & Liu, Z. (2018). Financing constraints, cyclical and smooth mechanism of enterprise R&D investment –based on enterprise ownership perspective. Industrial Economics Research, 2, 78–90. https://doi.org/10.13269/j.cnki.ier.2018.02.007
Kaplan, S. N., & Zingales, L. (1997). Do investment-cash flow sensitivities provide useful measures of financing constraints? Quarterly Journal of Economics, 112(1), 169–215. https://doi.org/10.1162/003355397555163
Kuang, X. W. (2011). Does financial development reduce the firm’s financial constraints? East China Economic Management, 25(5), 74–79.
Laeven, L. (2003). Does financial liberalization reduce financing constraints? Financial Management, 32(1), 5–34. https://doi.org/10.2307/3666202
Lamont, O., Polk, C., & Saaárequejo, J. (2001) Financial constraints and stock returns. Review of Financial Studies, 14(2), 529–554. https://doi.org/10.1093/rfs/14.2.529
Li, Y., & Zhang, T. (2009). Evaluation of financial ecological environment in China (2008–2009). China Finance Press.
Liu, H. D. (2014). Financial development, enterprise R&D financing constraint ease and total factor productivity growth: Empirical evidence from China’s industrial level. South China Finance, (1), 21–27. https://doi.org/10.3969/j.issn.1007-9041.2014.01.005
Liu, W. Q., He, Y. Q., & Zheng, Y. (2018). Financial deepening, financing constraint and enterprise’s R&D investment – an analysis from the perspective of industry heterogeneity. Jiangxi Social Sciences, 38(12), 215–224.
Liu, Y. H. (2007). Evaluation of financial ecological environment in China (2006–2007). China Finance Press.
Liu, Y. H., & Chen, X. S. (2011). Evaluation of financial ecological environment in China (2009–2010). Social sciences academic press, Beijing.
Love, I. (2003). Financial development and financing constraints: International evidence from the structural investment model. Review of Financial Studies, 16(3), 765–791. https://doi.org/10.1093/rfs/hhg013
Lu, X., Zheng, Y. F., & Li, J. M. (2013). Research on the influence of financing constraints on enterprise R&D investment – empirical evidence from China’s listed high-tech companies. Accounting Research, 5, 51–58. https://doi.org/10.3969/j.issn.1003-2886.2013.05.007
Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. The American Economic Review, 3, 261–297.
Sasidharan, S., Lukose, J., & Komera, S. (2015). Financing constraints and investments in R&D: Evidence from Indian manufacturing firms. The Quarterly Review of Economics and Finance, 55, 28–39. https://doi.org/10.1016/j.qref.2014.07.002
Song, J. B., Su, Z. H., & Nie, X. Q. (2018). Does development of financial markets help firm innovation? Evidence from China. Economic and Political Studies, 6(2), 194–208. https://doi.org/10.1080/20954816.2018.1463601
Wan, M. T. (2018). Empirical study on the relationship between financing constraints and R&D investment – based on empirical data of GEM listed companies. Management and Administration, 412(10), 53–56. https://doi.org/10.16517/j.cnki.cn12-1034/f.2018.10.015
Wang, X. L., Fan, G., & Yu, J. W. (2017). Report of market index of China’s provinces (2016). Social Sciences Academic Press.
Wei, F., & Liu, X. (2004). The impact of financing constraints, uncertainty on the corporate’s investment behavior. Economic Science, 26(2), 35–43.
Wei, Y. D., & Lan, Y. Z. (2019). Financial association and enterprise’s financing contract. Communication of Finance and Accounting, 36, 96–102. https://doi.org/10.16144/j.cnki.issn1002-8072.2019.36.019
Wei, Z. H., Zeng, A. M., & Li, B. (2014). Financial ecological environment and financing constraints – based on empirical research on Chinese listed companies. Accounting Research, 5, 73–80. https://doi.org/10.3969/j.issn.1003-2886.2014.05.009
Whited, T. M., & Wu, G. (2006). Financial constraints risk. Review of Financial Studies, 19(2), 531–559. https://doi.org/10.2139/ssrn.410816
Wu, J. (2019). Financing constraints for R&D in China: The role of state ownership. Applied Economics Letters, 26(14), 1162–1166. https://doi.org/10.1080/13504851.2018.1540839
Xie, W. M., & Fang, H. X. (2011). Financial development, financing constraint and enterprises R&D investment. Journal of Financial Research, 5, 171–183.
Yuan, L., & Xu, T. (2019). Does the financing mode affect the technological innovation of enterprisesempirical evidence from the world bank’s survey of Chinese enterprises. Journal of Macro-Quality Research, 7(3), 111–128. https://doi.org/10.13948/j.cnki.hgzlyj.2019.03.008
Zeng, Z. M., Wang, C. J., & Zhang, Q. (2017). The influence of financial development on financing constraints of China’s small and medium-sized listed companies. The Theory and Practice of Finance and Economics, 38(4), 15–20.
Zhai, S. P., & Gu, Q. (2013). Research on financial development, financial constraint and investment efficiency of high-tech enterprises. Economic Survey, 2, 138–143. https://doi.org/10.3969/j.issn.1006-1096.2013.02.026
Zhang, H. Y., & Wang, L. (2016). Financial development, financing constraints and the development of strategic emerging industries. Journal of Beijing Technology and Business University (Social Sciences), 1, 94–101. https://doi.org/10.16299/j.1009-6116.2016.01.011
Zhang, S. J. (2018). Research on the correlation between financing constraint and enterprise innovation input – from the perspective of combination of industry and finance. Communication of Finance and Accounting, 15, 109–113. https://doi.org/10.16144/j.cnki.issn1002-8072.2018.15.022
Zhu, D. P., & Sun, L. L. (2015). Financing constraints, market environment and R&D investment: an empirical research on listed companies of Chinese biological medicine industry. Science and Technology Management Research, 22, 98–102. https://doi.org/10.3969/j.issn.1000-7695.2015.22.019