Corporate innovation capacity and financial constraints: Evidence from Chinese corporations

Previous research confirms that financing constraints inhibit corporate innovation. Based on China's promotion of integrity building and the reality that most corporations face financing constraints, we empirically examine the impact of corporate innovation ability on their financing constraints and the impact of TCR on debt financing strategies using the data of tax credit rating A as disclosed on the website of the State Administration of Taxation (SAT) for a sample of Chinese A-share listed corporations from 2011-2018. The results show that:(1) corporate innovation capacity exacerbates corporate financing constraints, specifically, the "constraint effect" of corporate innovation capacity on financing is greater than the "bridge effect", and thus exacerbates corporate financing constraints. (2) Compared with non-A-rated corporations, corporations that received tax credit rating of A for the first time in 2015 will choose to increase the proportion of bank borrowing and reduce the proportion of commercial credit and corporate bonds when they have financing needs, which shows the "incentive effect" of the TCR system on corporations and the credit assistance of banks to A-rated corporations. (3) In the case of high financing constraint, the corporations with the first TCR will moderately reduce the proportion of bank borrowing, increase the proportion of commercial credit line and increase the proportion of corporate bonds in the subsequent years compared with other corporations. The results suggest that under high financing constraints, the TCR improves the financing environment for corporations and influences their bond financing preferences.