A Study on the Effects and Mechanisms of Capital Account Liberalization on the Corporate Financial Constraints

Luo Ziyuan; Jin Yuying

doi:doi:10.16538/j.cnki.jfe.2018.08.008

Summary

The financial constraints are common problems faced by both domestic and foreign companies in the process of operation. According to the neoclassical economics, capital account liberalization will facilitate the capital flows among countries, thereby improving the efficiency of capital utilization and increasing the global welfare. It means that capital account liberalization should mitigate the financial constraints of firms theoretically. So what is the role of capital account liberalization to solve the corporate financial constraints in reality? What are its micro financing mechanisms to affect the financial constraints of firms? Do the effects vary among the firms in countries with different income levels and different sizes? And whether China, as an upper-middle-income country, should accelerate the implementation of capital account liberalization at present? The answers are obviously important for judging the performance of capital account liberalization and future policy orientations.　　This paper first constructs the SA index to measure the financial constraints by using ordered logistic regression, and then examines the effects and mechanisms of capital account liberalization on the corporate financial constraints based on the panel data of 11621 listed companies in 63 countries from 2000 to 2013. The empirical analysis comes to the following conclusions: First, in general, the higher the degree of capital account liberalization a country is, the more conducive it is to ease the financial constraints for the country’s enterprises. Financial credit, commercial credit and equity financing are the main mechanisms for capital account liberalization to affect the financial constraints through which firms can gain more capital. Second, this effect varies among different kinds of countries because of their differences in capital abundance. In particular, the opening of the capital account does not contribute to alleviate the corporate financial constraints of upper-middle-income countries, and the failure of capital account liberalization on easing the financial constraints in these countries is caused by the reduction of commercial credit. Third, due to the existence of information asymmetry, large firms are more likely to obtain the financial credit, commercial credit, and equity financing to alleviate the financial constraints.　　These findings not only enrich the economic theory related to the capital account, but also provide the empirical evidence for countries at different stages of economic development to decide whether to accelerate the implementation of capital account liberalization. For countries at different stages, the effects of capital account liberalization on the corporate financial constraints are different. Therefore, we should not take the opening of the capital account as a general measure to solve the financial constraints. Particularly, upper-middle-income countries should pay more attention to it. This finding has vital policy significance for China which is on the stage of upper-middle-income. Capital account liberalization could worsen the financial constraint problems of firms in China. Besides, because of the information asymmetry, the ability of small firms to gain external financing through the international financial market is limited. In order to alleviate this problem, the implementation of capital account liberalization should be cooperated with an excellent social credit system and a credit guarantee system.