Does State Ownership Mitigate Financial Constraints? New Evidence from China

We propose new empirical evidence on the negative relationship between state ownership and firms' financial constraints. Our finding supports for the diminishing effect of market transition on political connections valuation in the context of 1,809 Chinese listed companies over 1999-2015. We find that lower performance of state-controlled firms leads their investment more dependent on generated internal funds compared with their private-controlled counterparts. Additionally, we find that financial constraints vary significantly across different types of state owners. This study also sheds further light on the debate over the use of investment cash flow sensitivity (ICFS) to interpret the extent of financial constraints through confirming the validity of this measure on the Chinese market