Financial development, ownership and internationalization of firms: evidence from China

Purpose: The purpose of this paper is to examine the relationship between financial development and internationalization of Chinese firms, whether the above relationship could be varied for firms with different kinds of ownership, and the channels through which financial development affects internationalization. Design/methodology/approach: This paper uses a sample of 2,053 firms for the period 2001 to 2013, and applies the methods of ordered logit, logit, and OLS regressions to examine the role of financial development on firms’ internationalization. Findings: The results show that financial development accelerates the level of international process of Chinese firms, and this effect is stronger for the non-state-owned enterprises (NSOEs) than for SOEs. The authors also document that financial development increases the investment scale of outward foreign direct investment (OFDI). In addition, the evidence on the channels through which financial development affects internationalization indicates that financial development accelerates the level of international process in high-technology industries and industries that are more dependent on external financing, and promotes the technology-seeking OFDI, and these effects are more prominent for NSOEs than for SOEs. Originality/value: First, this study examines Chinese firms’ internationalization from the perspective of financial development and focuses on the relationship between financial development and internationalization, and varies this relationship over firms with different kinds of ownership. Second, this study adds to the existing literature by identifying two channels through which financial development has an impact on internationalization, namely, external finance and high-tech intensiveness, and identifies the impact of financial development on technology-seeking OFDI.