|
|
|
| The Effect of Trade Liberalization on Manufacturing Firms' Cash Savings: Precautionary Savings Motive or Investment Extrusion？ |
| ZHANG Guofeng, WANG Yongjin, LI Kunwang
|
School of International Trade and Economics, University of International Business and Economics;
School of Economics/ Collaborative Innovation Center for China Economy, Nankai University |
|
|
|
Abstract With access to the WTO, Chinese firms have more opportunities to export and invest because of lower import tariffs. At the same time, trade liberalization leads to higher pressure from import competition. How does such import competition affect firms' cash savings ratios？ Answering this question would not only help in understanding firms' cash savings behavior after admission to the WTO but also have real-world benefits in terms of activating the monetary stock and stimulating the real economy. However, the literature pays little attention to this issue.
Theoretically, firms' cash savings ratios are affected by import competition through two channels. On one hand, firms will increase their cash savings, referred to as precautionary savings, to defend against the risks of import competition. On the other hand, more imports will increase competition for investment opportunities, especially when investment projects are similar between firms. If predatory investment happens, firms will lose investment opportunities; this weakens the motive to keep cash, and thus cash savings will decrease. However, the effect of trade liberalization on cash savings will depend on firm size. Large firms will keep more cash to execute the predatory pricing or entry barrier strategy. Meanwhile, the exit risk for less productive firms will increase under a more competitive market. Thus, less productive firms will keep more cash to manage operating risks.
This paper discusses the effect of trade liberalization on manufacturing firms' cash savings ratios and, using a difference-in-differences method, explores the mechanisms and heterogeneous effects based on the quasi-natural experiment of China's admission to the WTO. The firm-level variables are mainly from the Annual Survey of Industrial Firms (ASIF) conducted by the National Bureau of Statistics of China from 1998 to 2007, and firm trade regime information is taken from China Customs Data over the period 2000-2007. The dataset of Chinese import tariffs is downloaded from the Trade Analysis Information System (TRAINS) and WTO website. Average tariffs are selected to measure the industry tariff level in this paper.
Cash savings are calculated by eliminating inventory and account receivables from a firm's liquid assets, in line with the definition of cash and cash equivalents in the China Accounting Standards. To test for measurement errors in the cash savings index, we first merge the ASIF from 1998 to 2013 with Wind data of listed companies by firm name. Then, we compare the difference between the cash savings ratio measured in this paper and those published by the listed companies. We find that the cash savings ratio calculated in this paper is acceptable.
This paper contributes to the literature in three respects. First, this paper is the first to study whether trade liberalization affects firms' cash savings, and we find that Chinese firms exhibit different cash saving behavior compared to firms in developed countries. Second, instead of focusing on listed companies, this paper uses ASIF data to avoid undervaluing the average cash savings of manufacturing companies. Third, this paper explores the mechanisms in detail to identify whether the main source of cash savings variation comes from changes in the precautionary savings motive or from changes in investment opportunities.
First, we find that China's trade liberalization did not increase manufacturing firms' cash savings ratios but rather significantly reduced them as a result of decreasing investment. This finding is different from the conclusions for developed countries. Second, the effect of trade liberalization on firms' cash savings depends on the extent of market competition: lower tariffs will significantly reduce firm cash savings in competitive industries and highly concentrated areas. Third, import competition will erode the investment opportunities of domestic firms, especially small ones, thereby reducing their cash savings. The conclusions remain valid after a series of tests. These findings suggest that unlike in developed countries, the competition effect of China's trade liberalization has a negative impact on firm investment in the short term. How to deal with this unfavorable situation remains a substantial challenge for local manufacturing firms.
Relaxing market access and opening up the service sectors are important tasks in the new pattern of China's overall opening up, as emphasized at the 19th National Congress of the Communist Party. In a subsequent study, we will explore another important issue related to China's opening up, that is, how the liberalization of service sectors, especially the financial sector, affects firms' cash savings and saving strategy.
|
|
Received: 12 November 2018
Published: 27 September 2019
|
|
|
|
|
| [1] |
郭豫媚、戴赜和彭俞超,2018,《中国货币政策利率传导效率研究:2008-2017》,《金融研究》第12期,第37~54页。
|
| [2] |
韩忠雪和周婷婷,2011,《产品市场竞争、融资约束与公司现金持有:基于中国制造业上市公司的实证分析》,《南开管理评论》第4期,第149~160页。
|
| [3] |
简泽、张涛和伏玉林,2014,《进口自由化、竞争与本土企业的全要素生产率——基于中国加入WTO的一个自然实验》,《经济研究》第8期,第120~132页。
|
| [4] |
江小涓,2008,《中国开放三十年的回顾与展望》,《中国社会科学》第6期,第66~85页。
|
| [5] |
刘星、张超和辛清泉,2016,《融资约束还是需求冲击:金融危机期间中国上市公司资本投资研究》,《金融研究》第11期,第37~54页。
|
| [6] |
毛其淋和盛斌,2014,《贸易自由化与中国制造业企业出口行为:“入世”是否促进了出口参与？》,《经济学(季刊)》第2期,第647~674页。
|
| [7] |
杨兴全、齐云飞和吴昊曼,2016,《行业成长性影响公司现金持有吗？》,《管理世界》第1期,第153~169页。
|
| [8] |
杨兴全和孙杰,2007,《企业现金持有量影响因素的实证研究——来自我国上市公司的经验证据》,《南开管理评论》第10期,第47~54页。
|
| [9] |
杨兴全和尹兴强,2015,《行业集中度、企业竞争地位与现金持有竞争效应》,《经济科学》第6期,第78~91页。
|
| [10] |
杨兴全和曾义,2014,《现金持有能够平滑企业的研发投入吗？——基于融资约束与金融发展视角的实证研究》,《科研管理》第7期,第107~115页。
|
| [11] |
余淼杰和智琨,2016,《进口自由化与企业利润率》,《经济研究》第8期,第57~71页。
|
| [12] |
曾爱民、傅元略和魏志华,2011,《金融危机冲击、财务柔性储备和企业融资行为——来自中国上市公司的经验证据》,《金融研究》第10期,第155~169页。
|
| [13] |
张国峰、王永进和李坤望,2016,《产业集聚与企业出口:基于社交与沟通外溢效应的考察》,《世界经济》第2期,第48~74页。
|
| [14] |
Ackerberg D. A., Caves K., and Frazer G. 2015. “Identification Properties of Recent Production Function Estimators”, Econometrica, 83(6): 2411~2451.
|
| [15] |
Alimov A. 2014. “Product Market Competition and the Value of Corporate Cash: Evidence from Trade Liberalization”, Journal of Corporate Finance, 25: 122~139.
|
| [16] |
Bertrand M., Duflo E., and Mullainathan S. 2004. “How Much Should We Trust Differences-In-Differences Estimates？”, Quarterly Journal of Economics, 19: 249~275.
|
| [17] |
Brandt L., Van Biesebroeck J., and Zhang Y. F. 2012. “Creative Accounting or Creative Destruction？ Firm-level Productivity Growth in Chinese Manufacturing”, Journal of Development Economics, 97(2): 339~351.
|
| [18] |
Caves R. E., and Porter M. E. 1977. “From Entry Barriers to Mobility Barriers: Conjectural Decisions and Contrived Deterrence to New Competition”, Quarterly Journal of Economics, 91(2): 241~261.
|
| [19] |
Dittmar A., Mahrt-Smith J., and Servaes H. 2003. “International Corporate Governance and Corporate Cash Holdings”, Journal of Financial and Quantitative Analysis, 38(01): 111~133.
|
| [20] |
Ellison G., and Glaeser E. L. 1997. “Geographic Concentration in US Manufacturing Industries: A Dartboard Approach”, Journal of Political Economy, 105(5): 889~927.
|
| [21] |
Feenstra R. C., and Weinstein D. E. 2010. “Globalization, Markups, and the US Price level”, Cambridge: National Bureau of Economic Research.
|
| [22] |
Frésard L., and Valta P. 2013. “Competitive Pressure and Corporate Investment: Evidence from Trade Liberalization”, Working paper.
|
| [23] |
Frésard L. 2010. “Financial Strength and Product Market Behavior: The Real effects of Corporate Cash Holdings”, The Journal of Finance, 65: 1097~1122.
|
| [24] |
Guadalupe M., and Wulf J. 2010. “The Flattening Firm and Product Market Competition: The Effect of Trade Liberalization on Corporate Hierarchies”, American Economic Journal: Applied Economics, 2(4): 105~127.
|
| [25] |
Han S., and Qiu J. 2007. “Corporate Precautionary Cash Holdings”, Journal of Corporate Finance, 13(1): 43~57.
|
| [26] |
Haushalter D., Klasa S., and Maxwell W. F. 2007. “The Influence of Product Market Dynamics on a Firm's Cash Holdings and Hedging Behavior”, Journal of Financial Economics, 84(3): 797~825.
|
| [27] |
Jiang F., Kim K. A., Nofsinger J. R., and Zhu B. 2015. “Product Market Competition and Corporate Investment: Evidence from China”, Journal of Corporate Finance, 35: 196~210.
|
| [28] |
Lu Y., and Yu L. 2015. “Trade Liberalization and Markup Dispersion: Evidence from China's WTO Accession”, American Economic Journal: Applied Economics, 7(4): 221~253.
|
| [29] |
Lyandres E., and Palazzo B. 2016. “Cash Holdings, Competition, and Innovation”, Journal of Financial and Quantitative Analysis, 51(6): 1823~1861
|
| [30] |
Ma Y., Tang H., and Zhang Y. 2014. “Factor Intensity, Product Switching, and Productivity: Evidence from Chinese Exporters”, Journal of International Economics, 92(2): 349~362.
|
| [31] |
Melitz M. J., and Ottaviano G. I. P. 2008. “Market Size, Trade, and Productivity”, The Review of Economic Studies, 75(1): 295~316.
|
| [32] |
Morellec E., Nikolov B., and Zucchi F. 2014. “Competition, Cash holdings, and Financing Decisions”, Swiss Finance Institute Research Paper No. 13~72.
|
| [33] |
Pavcnik N. 2002. “Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants”, The Review of Economic Studies, 69(1): 245~276.
|
| [34] |
Xu J. 2012. “Product Market Competition and Capital Structure: Evidence from Import Penetration”, Journal of Financial Economics, 106, 427~446.
|
| No related articles found! |
|
|
|
|
