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The effect of the COVID-19 pandemic on corporate trade credit financing

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  • Xie, Wenlan
  • Tian, Haowen

Abstract

Using a difference-in-differences (DiD) model, this study investigates the causal relationship between the COVID-19 pandemic and trade credit financing. We find that the pandemic significantly increases trade credit financing for companies that are strongly affected by COVID-19. This may because of the increasing cost of bank lending; companies turn to more flexible and less costly alternatives as a result. A parallel trend test supports this finding. This research provides implications for corporate managers, supply chain partners, and capital market investors.

Suggested Citation

  • Xie, Wenlan & Tian, Haowen, 2023. "The effect of the COVID-19 pandemic on corporate trade credit financing," Economics Letters, Elsevier, vol. 232(C).
    • Handle: RePEc:eee:ecolet:v:232:y:2023:i:c:s0165176523003646
    DOI: 10.1016/j.econlet.2023.111339
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    References listed on IDEAS

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    1. Sirui Wu & Guangming Gong & Xin Huang & Haowen Tian, 2022. "The Interaction Between Suppliers and Fraudulent Customer Firms: Evidence from Trade Credit Financing of Chinese Listed Firms," Journal of Business Ethics, Springer, vol. 179(2), pages 531-550, August.
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    6. Meghana Ayyagari & Asli Demirgüç-Kunt & Vojislav Maksimovic, 2010. "Formal versus Informal Finance: Evidence from China," The Review of Financial Studies, Society for Financial Studies, vol. 23(8), pages 3048-3097, August.
    7. Leora Klapper & Luc Laeven & Raghuram Rajan, 2012. "Trade Credit Contracts," The Review of Financial Studies, Society for Financial Studies, vol. 25(3), pages 838-867.
    8. Wan, Zhao & Tian, Haowen, 2022. "The effect of the COVID-19 pandemic on information disclosure: Evidence from China," Economics Letters, Elsevier, vol. 217(C).
    9. Santiago Carbó‐Valverde & Francisco Rodríguez‐Fernández & Gregory F. Udell, 2016. "Trade Credit, the Financial Crisis, and SME Access to Finance," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(1), pages 113-143, February.
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    Cited by:

    1. Tian, Haowen & Wang, Junkai, 2024. "Navigating the storm: How the COVID-19 pandemic transformed the M&A landscape," Finance Research Letters, Elsevier, vol. 59(C).

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