Do U.S. Sanctions Significantly Impact the Financing Constraints of Chinese‐Listed Firms?

ABSTRACT This study examines whether U.S. sanctions significantly impact the financing constraints of Chinese listed firms. Using a uniquely constructed dataset of Chinese A‐share firms spanning the 2007 to 2021 period that were directly impacted by the U.S. sanctions, we provide strong evidence showing a positive relationship between sanctions and financing constraints. Additional analyses indicate that the positive relationship between sanctions and financing constraints is more (less) pronounced for firms with greater risk exposure (strong market position, strong innovation and research capabilities, and effective government support policies). Sanctions also increase the financing costs for affected firms, shorten their financing duration, and complicate their access to financing. Finally, various endogeneity tests and robustness checks confirm our baseline results. Overall, our study provides important insights into the detrimental effect of U.S. sanctions on Chinese firms' financing constraints.