Regional Financial Development and Financing Constraints in R&D Investments: A Panel Study of Chinese High-Tech Firms

Abstract

We apply the Q-Theory investment model to a panel of high-tech firms listed on the Chinese stock market during 2008 and 2011, to study the effect of financial development in reducing financing constraints of firm's R&D growth. Based on the sizable discrepancies of stock market and financial intermediary development in east, middle and west regions of China, we also split the sample into subsamples based on firm location to conduct the analysis. Empirical estimation provides strong evidence that financial development in both credit and stock market has a large effect on reducing financing constraints. This effect is most significant in the financially more developed east region of China. In the financially less developed middle region, the marginal effect is larger in scale but less significant.

Keywords: financing constriants, regional financial development, internal finance, external finance

JEL Classification: G32, G38