A bulk of literature has demonstrated the importance of financial markets to countries’ economic
development. This thesis studies the influence of financial markets by exploring the effect of
firms’ access to finance on their performances. Running a linear regression model on the data of
2,700 private firms in China from 2011 to 2012, this thesis finds that obstacles to firms’ access to
finance have a significantly negative impact on firms’ performances. Particularly, the negative
effect matters more for SMEs, firms solely owned by males, and non-exporters. In addition, the
adverse effect of firms’ financial constraints still exists even with alternative measurements of
firms’ performances and various aspects of financial constraints. The empirical findings suggest
that financial reforms aimed at improving private firms’ financial access would be of great
importance to China. Possible policy solutions include reducing government controls, promoting
inter-bank competition, encouraging diversified financial institutions, and improving intangible
infrastructures.