論文：Financial constraints, firms heterogeneity and investment Behavior

論文：Financial constraints, firms heterogeneity and investment Behavior
: Case in transitional period of China

Abstract
How does property affect financial constraints and investment behavior, especially in China’s transitional period? This paper assessed this issue by e*patiating on the empirical relationship among the listed companies in China. Using macro data and firm level panel data, we found (1) there are indeed more austere financial constraints for NSOEs, especially for long-term investment; (2) both SOEs and NSOEs have high sensitivity in cash flow-investment relationship; (3) but internal mechanisms are very different for these two types of heterogeneous firms. The truth is that SOEs have more financial constraints not due to the imperfections of financial market only which results in underinvestment; but for SOEs, the high sensitivity lies in the agency cost and improper incentive mechanism (resulting in investment thirst). (4) besides, different term structure of loan and other e*ternal financing sources have different constraining influences over investment behavior.

Keywords: Investment behavior; financial constraints; heterogeneity; panel data

JEL Classification: E22 (Capital; Investment; Capacity); G31 (Capital Budgeting; Fi*ed Investment and Inventory Studies); P34 (Financial Economics)

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1. Introduction
The gap between the theoretical side and the reality is driving the process of researches on capturing dynamical characters of investment behavior. Over the past decade, a number of researchers have e*tended conventional neoclassical models
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e method mentioned by Hubbard (1998), we use the cash flow-investment relationship (sensitivity) to test the e*ternal financing constraints and try to find if there are some different dynamical characters for each type of firms. And further more, which kind of factors and variables have important influence on the investment adjustment behavior?
My main findings are as follows: (1) Theoretical aspect, in the intertemporal framework, equilibrium path can be found under the assumption of conve* adjustment cost function and irreversible nature of fi*ed capital. Within a quadratic adjustment cost model, especially, by analyzing the dynamical process, we found that different discrimination in financing will have important impact on the investment behavior, by defining two types of enterprises, namely, SOEs and NSOEs.(2) Using cross-section data and panel data of Chinese firm level, cash flow can be a significant variable to e*plain the investment behavior. NSOEs face more austere financing constraints. Tobin’s Q value is also significant in e*plaining firm’s investment behavior.
This article is organized as follows: (1) An introduction, and then (2) the definition and stylized facts in firms’ investment behaviors. In the following part (3), we set up an intertemporal model to capture the dynamical process of investment for SOEs and NSOEs. In part (4), some empirical studies have been done to find the relationship between financing constraints and investment behavior. Conclusion is drawn eventually in the last part.

2. Observed stylized facts in firms’ heterogeneity
Even there are some important factors making firms heterogeneous, such as firm size, technology, financing conditions and industries etc., but for transitional countries, differences in objective functions and operation mechanisms are more important. Just like Gomes (2001), financing constraint is essentially determined by the individual productivity and not the size or the scale of firm. The stylized fact and reasonable description is dual structure in firms distinguished by property. In other words, there is dual structure in the firms, state-owned or non-state-owned. So constructing homogenous representative agent models will make mistakes in the process of model-specification.
Many documents on “soft budget constraint” have described these stylized facts; there are indeed big differences between the SOEs and NSOEs, especially in objective functions. In a monopolistic competitive market the SOEs take ma*imizing output or sales revenue instead of net profit as their main target. Let’s begin with some stylized facts in the aggregate investment in China.
This paper will focus on the Firm’s dynamic investment behavior in the transitional period and try to capture the logical plot of the particular phenomena in comple* investment behaviors. We seek to set up models to understand these stylized facts using the method of “financial constraints” and heterogeneity of firms based on property. This paper is organized as follows, firstly, some introduction of real facts in China’s investment area; secondly we set up a simple model to describe the dynamical adjustment of investment behavior; lastly we give some conclusions.

Chart1. Definition of firms’ heterogeneity
Authors Conclusion Criterion of sorting firms
FHP (1996, 2000), Calomiris and Hubbard (1989, 1990, and 1995), Hoshi, Kashyap, and Scharfstein (1991), Oliner and Rudebusch (1992), Gilchrest and Himmelberg (1995)). a positive relationship between internally generated cash flow and investment for financial constraints Dividend level
Keiretsu
Mature or young

Debt level and leverage ratio

Compositive financial inde*es

Ownership structure
Kaplan=Zingales（1997,200）
Sean Cleary（1999） most constrained firms have the lowest sensitivities and the least constrained firms have the highest sensitivities.
Gomes(2001) All evidences maybe measurement error

Emphasis should be put on the kernel, (1) SOEs and NSOEs have different incentive mechanism, e.g. “soft budget constraint” theory [ Many Economists have e*patiated in e*plaining the investment behavior of SOE in transitional countries. See Korni etc.(2005) Qian(1998).] and “principal-agency” theory have come into this field. The result is that SOEs are driven by e*pense-ma*imization instead of by profit-ma*imization. But after years of reform, market mechanism also has impressive influence on the operation. See Yi (2003).
(2) Costs of capital are different for these two types of firms. Because the big monopoly banks are all state-owned, the institutional preference and discrepancy of treatment can be seen in financing activities. The NSOEs must pay more additional cost to get the same amount of loans or issuing securities. All these can be seen in the following specification of models.
(3) Financial constraints are very different between SOEs and NSOEs. According to Yu(2002), up to the year of 1998, the quotient of SOEs has fallen to 28.2％, but 70％ of banking loans and 85％ of total financial resources are impropriated by SOEs.[ See http://www.cctv.com/lm/266/11/26271.html and http://www.cs.com.cn/yh/200610/t20061012_1004297.htm]。From January to August in 2006, NSOEs have taken great role in fi*ed investment, say, as a proportion of 69.8%, but the share of 12.3％ loans are supplied to the private sectors[ http://www.p5w.net/news/gncj/200607/t437816.htm。]。
(4) The result is overinvestment and the inefficacy of financial system, not only for the e*pense-ma*imization oriented SOEs, but also the NSOEs. The following is some data to e*plain these characters in detail.
Figure1. Growth rate of capital formation and GDP



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