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Trade Credit and Firm Efficiency: Evidence from Chinese Manufacturing Firms

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  • Ying Tang
  • Lu Xu
  • Shijun Guo
  • Andrea Moro

Abstract

Our work focuses on the impact of trade credit financing on firm efficiency exploiting a sample of Chinese manufacturing listed firms for the period 2004 to 2018. We find that trade credit significantly improves firm efficiency. This positive association is stronger in firms located in regions with higher levels of social trust, during periods with higher economic policy uncertainty and in times of economic downturn. We reveal three economic mechanisms underlying our baseline findings: alleviating financial constraints, mitigating agency conflicts, and reducing transaction costs.

Suggested Citation

  • Ying Tang & Lu Xu & Shijun Guo & Andrea Moro, 2023. "Trade Credit and Firm Efficiency: Evidence from Chinese Manufacturing Firms," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 59(7), pages 2204-2216, May.
    • Handle: RePEc:mes:emfitr:v:59:y:2023:i:7:p:2204-2216
    DOI: 10.1080/1540496X.2023.2168477
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