Government provided rating, alleviation of financial constraints, and corporate investment

The State Taxation Administration (STA) of China established the tax credit rating system in 2015. Together with the banking regulatory authorities, STA entitles the higher‐level firms to favourable bank lending. We find that higher‐level firms are positively associated with capital investment, R&am...

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Bibliographic Details
Published inAccounting and finance (Parkville) Vol. 63; no. 4; pp. 3763 - 3779
Main Authors Li, Jinyang, Wang, Jenny Jing, Yu, Minggui
Format Journal Article
LanguageEnglish
Published Clayton Blackwell Publishing Ltd 01.12.2023
Subjects
corporate investment
debt financing
government provided rating
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Summary:The State Taxation Administration (STA) of China established the tax credit rating system in 2015. Together with the banking regulatory authorities, STA entitles the higher‐level firms to favourable bank lending. We find that higher‐level firms are positively associated with capital investment, R&D expenditures and employment. These effects are more pronounced in private firms, small firms, and financially constrained firms. We identify that firms rated higher‐level receive more debt financing at lower cost, and hoard less cash for the precautionary reasons. Our findings highlight the importance of the government rating, especially a developed credit rating market in which is absence in emerging economies.
Bibliography:ObjectType-Article-1
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ISSN:0810-5391
1467-629X
DOI:10.1111/acfi.13064