Essays in corporate finance: empirical applications in China

China has experienced rapid economic growth in the latest 40 years. From the macro perspective, the economic boom could be owing to the increase in the fixed investment, international trade and the input in innovation activities. However, in the micro level, it is interesting that how the Chinese firms grow so rapidly in the imperfect market with financing constraints. Therefore, this thesis focuses firm’s real decisions in export, fixed investment and innovation activities. The contributed chapters are structured as follows. The research topic of the chapter 3 is whether working capital investment helps the firm’s export decision. We employ panel a containing around 37,000 non-listed firms with different ownership types from 2000 to 2007. The main finding is that exporters can rely on working capital investment to promote their export probability. The group of continuous firms (including successful and new exporters) shows a stronger effect of working capital investment on export than that in the switch exporters group. Firms with private ownership most rely on working capital investment in the export while the state-owned enterprises (SOEs) may not rely on the working capital during the export. In addition, only firms with relatively high level of working capital can use it to promote export. In the chapter 4, we use the stochastic frontier approach (SFA) to estimate firm’s level of the investment cash flow sensitivity (ICFS). By using a panel of 66,500 Chinese unlisted firms between 2000 and 2007, we find the higher level of cash flows and better financial conditions can alleviate financial constraints. In the post estimation analysis, we find that the investment efficiency distribution is roughly right-skewed, and the private firms show the highest efficiency while the SOE firms show the lowest. Firms in the regions with higher level of legal institution show higher efficiency. Industries in the tertiary sector show a relative higher efficiency than industries in the secondary sector, but some industries in the tertiary sector display a different tendency of financial constraint, which may be affected by the firm ownership. The chapter 5 investigates how firms use the cash flow to smooth the research and development (R&D) projects. By using a panel from Chinese firms listed in the A-share exchanges, we find that the cash holding plays a smoothing role in the R&D investment in the presence of the temporary economic shock or short-term cash flow fluctuation. Firms with R&D use both the external and internal finance to support the R&D project. Larger firms are likely to invest more in R&D. The innovation investments in SoE firms are not significant in the changes of cash holding. A higher level of cash flow will weaken the R&D investment smoothing mechanism. Firms with high level of productivity are more sensitive to the changes in cash holding than their lower productivity counterparts. Firms with high level of ownership concentration are less sensitive to the changes in cash holding than their low level concentrated counterparts