Uncertainty and leverage nexus: does trade credit matter?

Muhammad Arif Khan (), Xuezhi Qin () and Khalil Jebran ()
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Muhammad Arif Khan: Dalian University of Technology
Xuezhi Qin: Dalian University of Technology
Khalil Jebran: Dongbei University of Finance and Economics

Eurasian Business Review, 2020, vol. 10, issue 3, No 2, 355-389

Abstract: Abstract This study investigates how uncertainty (economic policy uncertainty, market-based uncertainty, firm-specific uncertainty, and CAPM-based uncertainty) impacts the Chinese listed firms’ capital structure for the period 1999–2016, and further tests whether this relationship varies for state-owned enterprises (SOEs) and non-SOEs. In addition, we examine the moderating effect of a non-formal financing channel (trade credit) on the relationship between leverage and uncertainty. The findings show that firms decrease the level of leverage with an increase in uncertainty, and this impact is less prominent for firms owned by the state. Furthermore, the results reveal that trade credit decreases the negative association between uncertainty and leverage, suggesting that firms (especially non-SOEs) adjust their financing demands by using trade credit under high uncertainty. The findings provide implications for corporations and policymakers about how capital structure decisions are influenced by different types of uncertainties in a firm’s environment.

Keywords: Leverage; Uncertainty; Trade credit; SOEs; China (search for similar items in EconPapers)
JEL-codes: D81 G32 O17 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (8)

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DOI: 10.1007/s40821-020-00159-5

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