The performance of private companies in China before and during the global financial crisis: firms’ characteristics and entrepreneurs’ attributes

Andrea Fracasso,Kun Jiang

doi:10.1007/s10644-021-09329-5

Andrea Fracasso, Kun Jiang

Open Access

https://doi.org/10.1007/s10644-021-09329-5

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Abstract

This work sheds light on how firm- and entrepreneur-specific attributes covariate with Chinese private firms’ growth rates before and during the global financial crisis. In order to do so, we exploit the exceptional presence of data regarding the firms’ sales over the previous three years in the 2010 China Private Enterprises Survey. Firms run by entrepreneurs with a high level of education and a positive subjective perception of their economic and social status tend to grow more in both periods. The age and the gender of the entrepreneurs, on the contrary, are not associated with different growth performances. As shown in the literature, companies that are smaller, more productive and have higher capital at start-up perform better in both periods. Notably, the relationship between firm growth rates and other relevant factors changes between 2007/2008 and 2008/2009: privatized companies outperform the others before the crisis, whereas joint-stock enterprises and companies with articulated systems of corporate governance do better in the crisis period. These and other novel results contribute to the understanding of the heterogeneous performances of the private firms in China and of the evolution of entrepreneurship during its transition toward a market-oriented economy.

Highlights

Firm heterogeneity is a well-known feature of the economy, and firm growth variation is often discussed in the economic, management and business literature
This paper contributes to the literature on heterogeneous firm growth in that it offers novel empirical evidence about how various firm- and entrepreneur-level factors determine the growth of the Chinese private sector around the Global Financial Crisis (GFC)
Understanding how the GFC affected Chinese private companies, is relevant to those interested in economies in transition as, at the time of the crisis, China was rapidly progressing in its transformation toward a market-oriented economy

Summary

Introduction

Firm heterogeneity is a well-known feature of the economy, and firm growth variation is often discussed in the economic, management and business literature. Traits, our empirical investigation addresses a number of relevant features of Chinese private companies that balance sheet data alone would not allow us to investigate (more on this below) This analysis provides evidence confirming some previous findings, that is that firm size and productivity are, respectively, negatively and positively correlated with firm growth. By focusing on entrepreneurs’ traits and firms’ characteristics around the GFC, our study bridges the research on the determinants of firm growth with the strand of the literature on the differentiated impact of economic crises and the business cycle fluctuations on firm performances.

Theoretical background

Empirical specification

The China Private Enterprises Survey

Variables of interest

Findings

Empirical results