Trade Credit: Substitution Financing, or A Signal of Liquidity Crisis?

Abstract

Abstract: Influenced by the decline of economic growth and structural de-leveraging policy, the pro-cyclical contraction of bank credit leads to the increase of enterprises′ dependence on commercial credit financing.Based on the data of non-financial listed companies from 2006 to 2017, this paper examines the evolution of the relationship between commercial credit and bank credit in different financial constraints under different economic cycles, and examines the actual effect of the increase of commercial credit on the bankruptcy risk of enterprises.The empirical results show that in the downturn period, the constraints of commercial credit financing will be tightened with the tightening of bank credit, the substitution effect of commercial credit on bank credit will decrease in a pro-cyclical manner, and the overall liquidity risk of the market will increase.Non-financing-constrained enterprises will reduce the use of commercial credit in the downturn cycle, while the substitution effect of commercial credit of financing-constrained enterprises is not affected by the economic environment. However, for financing-constrained enterprises, this substitution effect is more “false substitution”, that is, enterprises have not been effectively supplemented by commercial credit, but the passive growth of commercial credit caused by the deterioration of the financial situation of enterprises, which is a signal of rising credit risk.

Key words: trade credit, bank loan, risk of bankruptcy, liquidity risk

MA Ya-ming, ZHANG Jie-qiong. Trade Credit: Substitution Financing, or A Signal of Liquidity Crisis? [J]. 商业研究.

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