We investigate whether financing constraints affect the size distribution of Chinese industrial firms from 1998 to 2007. Although the firm size distribution does not follow Zipfdistribution in China, it is approaching Zipf distribution over time. In general, financing constraints have a robustly negative effect on the size distribution of firms. Furthermore, firms in Western China grow significantly more equally after controlling for financing constraints. However, the effect of financing constraints in Central China is significantly negative, and the effect of financing constraints on firm size distribution in Eastern China is insignificant. We thus expect a non-linear relationship between financing constraints and firm size distribution.
Financing constraints, zipf distribution, Chinese industrial firms, regional disparity