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Financial Constraints, Institutions, and Firm Productivity: Evidence from China

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  • Yang Wang
  • Qunxi Kong

Abstract

This paper investigates whether Chinese firms utilize trade credit as an alternative financial intermediation to alleviate financial constraints, and whether trade credit matters for firm productivity. The results show that trade credit significantly affects firm productivity in private and foreign-owned firms but not state-owned enterprises, indicating that trade credit is an efficient financial intermediation for non-state firms. Second, trade credit better helps firms that have severe financial constraints grow. Third, the mechanism of trade credit and TFP is by the substitution effect of cash flow, the smoothing effect of working capital and the drive of innovation. Finally, the impact of trade credit on productivity is driven by the regions under a more institutionally developed environment.

Suggested Citation

  • Yang Wang & Qunxi Kong, 2019. "Financial Constraints, Institutions, and Firm Productivity: Evidence from China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(11), pages 2652-2667, September.
    • Handle: RePEc:mes:emfitr:v:55:y:2019:i:11:p:2652-2667
    DOI: 10.1080/1540496X.2019.1577236
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    Citations

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    Cited by:

    1. Kong, Qunxi & Peng, Dan & Ruijia, Zhang & Wong, Zoey, 2021. "Resource misallocation, production efficiency and outward foreign direct investment decisions of Chinese enterprises," Research in International Business and Finance, Elsevier, vol. 55(C).
    2. Anton, Sorin Gabriel & Nucu, Anca Elena Afloarei, 2022. "On the role of institutional factors in shaping working capital management policies: Empirical evidence from European listed firms," Economic Systems, Elsevier, vol. 46(2).
    3. Qiao, Penghua & Liu, Siting & Fung, Hung-Gay & Wang, Chen, 2024. "Corporate green innovation in a digital economy," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 870-883.
    4. Danni Chen & Xue Chen & Huiying Sun, 2023. "Does corporate social responsibility protect shareholder value from the shock of COVID‐19? Evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(3), pages 3077-3094, September.
    5. Kong, Qunxi & Tong, Xin & Peng, Dan & Wong, Zoey & Chen, Huy, 2021. "How factor market distortions affect OFDI: An explanation based on investment propensity and productivity effects," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 459-472.
    6. Liu, Lihua & Cao, Lele & Cao, Yuqiang & Lu, Meiting & Shan, Yaowen, 2024. "VAT credit refunds and firm productivity: Evidence from China's VAT reform," International Review of Financial Analysis, Elsevier, vol. 93(C).
    7. Kong, Qunxi & Shen, Chenrong & Chen, Afei & Peng, Dan & Wong, Zoey, 2021. "How demand scale affect services exports? Evidence from financial development perspective," Research in International Business and Finance, Elsevier, vol. 58(C).
    8. Si, Deng-Kui & Li, Xiao-Lin & Huang, Shoujun, 2021. "Financial deregulation and operational risks of energy enterprise: The shock of liberalization of bank lending rate in China," Energy Economics, Elsevier, vol. 93(C).
    9. Kong, Qunxi & Shen, Chenrong & Sun, Wei & Shao, Wei, 2021. "KIBS Import Technological Complexity and Manufacturing Value Chain Upgrading from a Financial Constraint Perspective," Finance Research Letters, Elsevier, vol. 41(C).
    10. Wong, Zoey & Li, Rongrong & Zhang, Yidie & Kong, Qunxi & Cai, Molly, 2021. "Financial services, spatial agglomeration, and the quality of urban economic growth–based on an empirical analysis of 268 cities in China," Finance Research Letters, Elsevier, vol. 43(C).

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