Interlocking Global Business Systems: The Restructuring of Industries, Economies and Capital Markets

By Edward B. Flowers; Thomas P. Chen et al. | Go to book overview
and this would increase the banks' incentive to lend to high-profit firms, although the lending would still rely on the guarantees of the parent company.
2. The equation describing the local bank loan channel indicates that the location factor is significant in explaining when loans are obtained from banks in mainland China. The coefficient for the firms in south China is lower than for firms in the non-south regions. This implies that the firms outside of the southern region do not have good access to the international financial environment. They have to get closer to local resources in order to survive. They might therefore maintain more connections with local businesses and banks.
We conclude that the location factor significantly influences an overseas firm's decision to use internal funds from its parent company, from banks in Taiwan or from overseas branches of Taiwanese banks. The size of the parent company has an influence only on the decision of whether to use internal funds from the parent company. The profits of overseas affiliates have a positive influence on the use of loans from banks in Taiwan.The other equations are all unsatisfactory. The use of foreign branches of Taiwanese banks in China, the local branches of foreign banks in China and banks in third regions cannot be explained by the three factors cited in this chapter. These three kinds of financial channels seem to be unimportant in providing working capital for Taiwanese firms overseas.
CONCLUSIONS
Investment in mainland China and Southeast Asia by Taiwanese firms has increased dramatically in recent years. Our questionnaire investigation seeks to understand the characteristics of these investments. The Taiwanese overseas companies in Southeast Asia are bigger and older than those in mainland China. Taiwanese firms in Southeast Asia appear to have greater access to local banks than do those in mainland China. Whether the investments are in mainland China or in Southeast Asia, most of the firm's funds come from their parent companies in Taiwan. The most frequently adopted financial channels are those sourcing funds through domestic (Taiwanese) banks or through a third-country bank in Hong Kong. The Taiwanese investments in mainland China place a greater reliance on their parent companies than do those in Southeast Asia in terms of working capital.This chapter proposed several hypotheses to study the relationships between financial channels and investment environments and firm-specific factors. Probit analysis was used to test these hypotheses about Taiwanese investment in mainland China in detail. The study focused on the sources of both investment and working capital. These procedures produced the following results.
1. The relationship between sources of funds and location of investment: The Taiwanese overseas investments in south China get more funds from Taiwan than do Taiwanese investments in other areas of China. Firms in the southern region have easy access to the banks in Hong Kong or other countries. The evidence also shows that subsidiaries

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