Impact of financial capability on firms’ competitiveness and sustainability: Evidence from highly regulated Chinese market

Purpose: The purpose of this paper is to investigate the impact of different sources of external financing and internal financial capabilities on competitiveness and sustainability. This paper also studies the nature of their relationships related to regulations on external financing in Chinese capital market.

Design/methodology/approach: Resource- and industry-based views provide a theoretical background. Based on balanced panel of 4,530 firm-year observations, hierarchical regressions were used to examine the research model.

Findings: Results support the idea that the strict Chinese regulatory regime allows some firms to access capital and debt markets for financing more than others. It was found that firms’ internal financing abilities do not offer a significant advantage compared to external financing abilities; firms’ abilities to raise capital from existing shareholders, the public and easy access to bank financing are related positively for an advantage on firm’s competitiveness within a industry. Firms with the ability to offer shares to existing shareholders, issue non-convertible and convertible bonds and access to bank financing are sustainable in long-run.

Research limitations/implications: This study focuses on sources of financial capability of Chinese listed firm impact on competitiveness and sustainability. It is context specific to a regulated market. Hence, it is necessary to replicate this study in other contexts.

Practical implications: Implications include the need to mobilize external financial resources for small and privately-owned firms and to further reform security regulations to ensure fair competition and sustainability.

Originality/value: The authors originally investigate the effect of sources of financial capability impact on firms’ competitiveness and sustainability in a regulated market. The paper explains the relationships, and enhances the understanding of regulated capital market and existing literature.