Negative investment in China: financing constraints and restructuring versus growth

Ding, S. , Guariglia, A., Knight, J. and Yang, J. (2021) Negative investment in China: financing constraints and restructuring versus growth. Economic Development and Cultural Change, 69(4), pp. 1411-1449. (doi: 10.1086/706825)

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This paper addresses an interesting phenomenon in China’s investment pattern: despite high aggregate investment and remarkable economic growth, negative investment is commonly found at the microeconomic level. Using a large firm-level dataset, mainly made up of unlisted companies, we show that private firms undertake negative investment in order to raise capital. We also find that, owing to over-investment and mis-investment in the past, state-owned firms have had to restructure by getting rid of obsolete capital in the face of increasing competition and hardening budget constraints. Finally, rapid economic growth counterweighs both effects for all types of firms, with a larger impact in the private and foreign sectors. Thus, the needs to redeploy resources and to overcome capital market imperfections help to explain the negative investment of many Chinese firms.

Item Type:Articles
Additional Information:The authors thank the ESRC for providing financial support for this research (RES-000-22-3140).
Glasgow Author(s) Enlighten ID:Guariglia, Professor Alessandra and Ding, Professor Sai
Authors: Ding, S., Guariglia, A., Knight, J., and Yang, J.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Economic Development and Cultural Change
Publisher:University of Chicago Press
ISSN (Online):1539-2988
Published Online:11 October 2019
Copyright Holders:Copyright © 2019 The University of Chicago
First Published:First published in Economic Development and Cultural Change 69(4): 1411-1449
Publisher Policy:Reproduced in accordance with the publisher copyright policy

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