Formal finance and trade credit during China's transition

By Robert J. Cull, Lixin Colin Xu, T. Zhu. 2007

403 citations recorded by the source corpus.

Using a large panel dataset of Chinese industrial firms, we find that poorly performing SOEs were more likely to redistribute credit to firms with less privileged access to loans via trade credit. While that could be consistent with the efficient redistribution of credit, it is more likely that these SOEs extended trade credit to prop up faltering customers that were in arrears. By contrast, profitable private domestic firms were more likely to extend trade credit than unprofitable ones. Trade credit likely provided a substitute for loans for these firms' customers that were shut out of formal credit markets. As biases in lending become less severe, the allocation of lending became more efficient, and the amount of trade credit extended by private firms declined. Our evidence implies that redistribution of bank loans via trade was not a major contributor to China's explosive growth.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/0d33c95d1718921d2c24b3178d298e5cf0618898

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Citations in the corpus

Bargaining power and trade credit (2016, background): “First, Cull et al. (2008) use a large data set of over 100,000 industrial private Chinese firms and find an average percentage of sales financed by accounts receivable of 18%.3 This compares well to the 14% in our sample of firms (AR_per), suggesting that our random sample of Chinese firms is…”
A review of trade credit literature: Opportunities for research in operations (2013, background): “The finance literature has tackled these decision problems primarily by correlating measures of working capital managemen t with measures of firm profitability (Soenen, 1993; Shin and Soenen, 1998; Fisman, 2001; Wang, 2001; Deloof, 2003; Cull et al., 2007; García-Teruel and MartínezSolano, 2007 ). W”
What are the Reliably Important Determinants of Capital Structure in China (2014, background): “Evidence suggests that private firms in China are denied access to bank loans and often must resort to expensive trade credits (Brandt and Li, 2003; Cull et al., 2009).”
Trade Credit Provision and National Culture (2016, background): “publicly traded firms from 40 countries, Demirgüç-Kunt and Maksimovic (2001) find that trade credit provision is higher in countries with more developed banking systems while it is lower in countries with more protective legal environments.”
Trust and the Provision of Trade Credit (2014, positive): “The existing literature documents that informal institutions, such as governance mechanisms based on reputation and relationships, and/or alternative financing channels, such as trade credit, enable firms to overcome institutional barriers to sources of funding (Fisman and Love, 2003; Allen et al., ”
Government Connections and Financial Constraints: Evidence from a Large Representative Sample of Chinese Firms (2013, positive): “Usage of trade credit is also significantly associated with investment, consistent with the literature that finds that trade credit has played a positive role in China's development given its poor financial infrastructure (Allen et al., 2005; Cull et al., 2009).”
Internal financial constraints and firm productivity in China: Do liquidity and export behavior make a difference? (2013, neutral): “, 2010) or trade credit (Cull et al., 2009) by Chinese private firms, and their ability to team up with foreign firms (Poncet et al.”
Leverage and investment under a state-owned bank lending environment : evidence from China (2008, background): “A recent paper has shown that, before 2001, there was a negative relationship between bank loans and firm profitability not only in SOEs but also in private firms (Cull et al., 2007).”
Venture Capital Investment And The Performance Of Entrepreneurial Firms: Evidence From China (2013, background): “Hence, we contribute to the literature on corporate finance and R&D activities in emerging markets by examining the impact of institutions (Hu et al., 2005; Jefferson et al., 2006; Cull et al., 2009).”
To what extent did the economic stimulus package influence bank lending and corporate investment decisions? Evidence from China (2018, background): “…advantage in obtaining bank loans and they invest less efficiently (Shleifer and Vishny, 1994; Dewenter and Malatesta, 2001; Brandt and Li, 2003; Cull et al., 2009; Li et al., 2009; Firth et al., 2009; Chen et al., 2011), while it is also widely documented that politically connected executives…”
Ownership, Institutions, and Capital Structure: Evidence from China (2009, background): “Brandt and Li (2003), and Cull et al. (2009) find evidence suggesting that private firms in China are denied access to bank loans and that they resort to more expensive trade credits instead.”
Cluster-based industrialization in China: Financing and performance (2011, background): “13 Based on the investment climate survey conducted by the World Bank, Cull et al. (2009) find that trade credit does not play a significant role in firm performance among Chinese firms.”