Trade Credit Financing and Sustainable Growth of Firms: Empirical Evidence from China

Li Huang, Qianwei Ying, Shanye Yang and Hazrat Hassan
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Li Huang: Business School, Sichuan University, Chengdu 610065, China
Qianwei Ying: Business School, Sichuan University, Chengdu 610065, China
Shanye Yang: Business School, Sichuan University, Chengdu 610065, China
Hazrat Hassan: Business School, Sichuan University, Chengdu 610065, China

Sustainability, 2019, vol. 11, issue 4, 1-20

Abstract: As an effective substitute for bank credit to ease financing constraints, trade credit plays an important role in the operation and growth of enterprises. This paper extends the literature by providing evidence on the relationship between trade credit financing and firm-level sustainable growth. Using the financial statement data of 20,089 Chinese A-share listed firms over the period 2003 to 2017, running a regression using the cross-section regression method and employing the two-stage instrumental-variable regression method in the endogeneity test, the study finds that trade credit has an overall positive and significant impact on the sustainable growth of Chinese firms, especially for firms with higher internal control ability, trade credit financing contributes more to sustainable growth, and the same way with private enterprises, whose growth depends more on trade credit compared to state-owned firms. We further find that the link between trade credit financing and sustainable growth of a firm is stronger in areas with lower access to finance, suggesting that firms with higher dependence on trade credit financing exhibit higher rates of sustainable growth in areas with weaker financial institutions.

Keywords: trade credit; sustainable growth of firms; internal control quality; financial market developmental level (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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