Financing Constraints and Corporate Value in China: The Moderating Role of Multinationality and Ownership Type

Abstract

Drawing on institutional theory and agency theory, this study examines the relationship between financing constraints and corporate value in China. In addition, we provide solutions for negative effects of financing constraints on corporate value in China. Chinese firms tend to utilize costly informal institutions to gain legitimacy and necessary resources from external stakeholders. This can lead to Chinese firms’ assuming higher financing transaction costs, negatively influencing corporate value. The multinational strategy of Chinese firms can further increase the financial burden of the company, and agency problems of state-owned enterprises (SOEs) can negatively affect the enthusiasm of managers, exacerbating the restraining effects of financing constraints on corporate value. We empirically analyze the non-financial companies listed on the Chinese stock market from 2011 to 2020 by using the methods of fixed effects and dynamic regression, heterogeneity analysis, and instrumental variables. The results show that financing constraints significantly inhibit corporate value. Accounting for the impact of differing degrees of multinationality and different types of ownership in enterprises, we empirically present the positive moderating effects of multinationality and ownership type in reducing corporate value in circumstances of financing constraints. Finally, we suggest ways for Chinese firms to overcome the negative effects of financing constraints on corporate value.