Regional financial risk and firms' access to trade credit: Evidence from China

Luqing Shi, Zhujia Yin, Yun Zhang, Linjia Song and Xin Yang

Pacific-Basin Finance Journal, 2025, vol. 90, issue C

Abstract: Regional financial risk, as a representative form of tangible financial risk, introduces heightened uncertainty into the external economic environment of firms. Different from previous studies on aggregate financial risk conditions, this paper focuses on the impact of regional financial risk on firms' access to trade credit. We find a robust negative relationship between regional financial risk and trade credit. Moreover, channel tests reveal that this relationship is achieved through increased cash holdings, reduced investment demand, and being in financial distress. Cross-sectional tests show that this effect is moderated for firms with high market power and high-tech attributes, as well as those located in regions with high levels of marketization processes, social trust, and bank loans. Further analysis indicates that the effect of regional financial risk on trade credit varies significantly across China's four economic regions. This paper contributes to the literature on the determinants of firms' access to trade credit and the empirical literature on China's geographically segmented financial markets.

Keywords: Regional financial risk; Trade credit; Financing policy (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:90:y:2025:i:c:s0927538x24003949

DOI: 10.1016/j.pacfin.2024.102642

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