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Growth opportunities and trade credit: evidence from Chinese listed firms

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  • Sekyung Oh
  • Woo Sung Kim

Abstract

Private firms in China have led the explosive growth of the country’s economy, but with restricted or no access to formal financing. It is puzzling that these firms use relatively less trade credit than their counterparts in developed countries. We argue that firms with more growth opportunities should rely mainly on internal financing owing to high asymmetric information, especially in a financial market environment biased towards state-owned enterprises (SOEs) such as China. To explore growth opportunities, these firms may reduce their level of trade credit in the trade-off they face in deciding where to invest. Using panel data of Chinese non-financial listed firms for the period 2003–2013, we find that the relationship between growth opportunities and trade credit (both accounts receivable and payable) is significantly negative and is more pronounced in private firms than in SOEs. Furthermore, we also find that subsequent to the new receivable pledge policy being introduced, Chinese firms with more growth opportunities have higher accounts receivable, but similar levels of accounts payable.

Suggested Citation

  • Sekyung Oh & Woo Sung Kim, 2016. "Growth opportunities and trade credit: evidence from Chinese listed firms," Applied Economics, Taylor & Francis Journals, vol. 48(56), pages 5437-5447, December.
    • Handle: RePEc:taf:applec:v:48:y:2016:i:56:p:5437-5447
    DOI: 10.1080/00036846.2016.1178846
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    Cited by:

    1. Falavigna, Greta & Ippoliti, Roberto, 2023. "SMEs’ behavior under financial constraints: An empirical investigation on the legal environment and the substitution effect with tax arrears," The North American Journal of Economics and Finance, Elsevier, vol. 66(C).
    2. Calabrese, G.G. & Falavigna, G. & Ippoliti, R., 2024. "Innovation policy and corporate finance: The Italian automotive supply chain and its transition to Industry 4.0," Journal of Policy Modeling, Elsevier, vol. 46(2), pages 336-353.
    3. Inmaculada Aguiar-Díaz & Ewelina Mruk & María Victoria Ruiz-Mallorquí, 2024. "How judicial efficiency impacts trade credit and doubtful receivables," European Journal of Law and Economics, Springer, vol. 57(1), pages 63-91, April.
    4. Ishmael Tingbani & Godfred Adjapong Afrifa & Venancio Tauringana & Collins Ntim, 2024. "Trade credit and corporate growth," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 206-228, January.

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