The amplification effect of financial constraints on firm value during industry downturns: a study of China's listed firms

초록

Research on the amplification effect of firms' financial constraints on the firm value during industry downturns remains limited in China and other developing economies due to data constraints. This study addresses this gap by introducing a new framework that can serve as a reference for future research on developing economies. To our knowledge, this study provides the first evidence using panel regression analysis in this context, drawing on data from 2,866 listed non-financial firms across 54 industries in China from 2000 to 2021. Specifically, we examine how competitors' financial vulnerability affects the firm value within the same industry during industry downturns and analyse the extent to which financial constraints amplify these effects. The pooled linear regression results are inconsistent with those of most prior studies. However, panel regression estimates yield results consistent with prior studies, showing that during industry downturns, competitors' financial vulnerability negatively affects the firm value within the same industry. This negative externality amplifies the impact on firm value by approximately 1.98 to 3.32 times, depending on the definition of industry downturns and financial constraints. Additionally, the effect is pronounced in the industries with high asset specificity but is not observed in those with low asset specificity.

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