Stock liquidity and corporate trade credit strategies: evidence from China
Abstract
This study investigates the nexus of stock liquidity and trade-credit policies in China from 2002 to 2017. The estimates are robust to alternative proxies, various fixed-effects, and the exogenous impact of Chinese split share structure reforms (SSSR) 2005-06 is investigated through the difference-in-difference analysis. The results validate that stock liquidity significantly impacts firms’ capacity to produce more trade credit supplies and less reliant on trade credit demand. The study applied SUEST analysis to investigate the effect of the Chinese institutional setting. The nexus of stock liquidity and trade credit strategies is substantial in state-owned enterprises. Additional analysis revealed that the said association is more visible to credit-constrained and equity-reliant enterprises. The policymakers should focus on market liquidity because it elevates firms’ capacity to mobilize capital through trade credit provisions. The micro aspect of this study suggests that stock liquidity allows managers to shape non-price competitive strategies and avoid excessive usage of trade credits.
First published online 30 November 2021
Keyword : trade credit, stock liquidity, stock market, financial flexibility, equity financing, trading activity
How to Cite
Shahzad, U., Liu, J., & Luo, F. (2022). Stock liquidity and corporate trade credit strategies: evidence from China. Journal of Business Economics and Management, 23(1), 40–59. https://doi.org/10.3846/jbem.2021.15655
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Ding, M., & Suardi, S. (2019). Government ownership and stock liquidity: Evidence from China. Emerging Markets Review, 40, 100625. https://doi.org/10.1016/j.ememar.2019.100625
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Fong, K. Y. L., Holden, C. W., & Trzcinka, C. A. (2017). What are the best liquidity proxies for global research? Review of Finance, 21(4), 1355–1401. https://doi.org/10.1093/rof/rfx003
Garcia-Appendini, E., & Montoriol-Garriga, J. (2013). Firms as liquidity providers: Evidence from the 2007–2008 financial crisis. Journal of Financial Economics, 109(1), 272–291. https://doi.org/10.1016/j.jfineco.2013.02.010
Giannetti, M., Burkart, M., & Ellingsen, T. (2011). What you sell is what you lend? Explaining trade credit contracts. The Review of Financial Studies, 24(4), 1261–1298. https://doi.org/10.1093/rfs/hhn096
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Goyenko, R. Y., Holden, C. W., & Trzcinka, C. A. (2009). Do liquidity measures measure liquidity? Journal of Financial Economics, 92(2), 153–181. https://doi.org/10.1016/j.jfineco.2008.06.002
Graham, J. R., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2–3), 187–243. https://doi.org/10.1016/S0304-405X(01)00044-7
Gu, L., Wang, Y., Yao, W., & Zhang, Y. (2018). Stock liquidity and corporate diversification: Evidence from China’s split share structure reform. Journal of Empirical Finance, 49, 57–80. https://doi.org/10.1016/j.jempfin.2018.09.002
Guariglia, A., Liu, X., & Song, L. (2011). Internal finance and growth: Microeconometric evidence on Chinese firms. Journal of Development Economics, 96(1), 79–94. https://doi.org/10.1016/j.jdeveco.2010.07.003
Hadlock, C. J., & Pierce, J. R. (2010). New evidence on measuring financial constraints: Moving beyond the KZ index. The Review of Financial Studies, 23(5), 1909–1940. https://doi.org/10.1093/rfs/hhq009
Hanley, A., Liu, W.-H., & Vaona, A. (2015). Credit depth, government intervention and innovation in China: Evidence from the provincial data. Eurasian Business Review, 5(1), 73–98. https://doi.org/10.1007/s40821-015-0016-2
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Hosseini-Motlagh, S. M., Nematollahi, M., Johari, M., & Sarker, B. R. (2018). A collaborative model for coordination of monopolistic manufacturer’s promotional efforts and competing duopolistic retailers’ trade credits. International Journal of Production Economics, 204, 108–122. https://doi.org/10.1016/j.ijpe.2018.07.027
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