Abstract
The purpose of this paper is to test the applicability of the financial ac- celerator mechanism to China. Using the Chinese Industrial Enterprises Database, we find strong evidence suggesting that the employment and investment of leveraged firms are less responsive to aggregate fluctuations. This finding goes against the im- plications of the financial accelerator. To make sure our empirical result is reliable, we have done several robustness checks using different estimation methods and sub- samples.
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