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Inventory investment and the choice of financing: Does financial development play a role?

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  • Yang, Junhong
  • Guariglia, Alessandra
  • Peng, Yuchao
  • Shi, Yukun

Abstract

This paper uses a panel of 224,604 Chinese firms over the period 2004–2009 linked with a set of unique city-level financial development data to examine how financial development affects the way corporate inventory investment is financed. We find that financial development enhances the use of interest-bearing loans and discourages the use of trade credit in financing inventory investment. These effects are more pronounced after the 2007 property rights reform, as well as for privately-owned firms, small firms, firms with no political connections, and firms located in coastal regions. Our results are robust to using a variety of different specifications, as well as different measures of financial development and estimation methods.

Suggested Citation

  • Yang, Junhong & Guariglia, Alessandra & Peng, Yuchao & Shi, Yukun, 2022. "Inventory investment and the choice of financing: Does financial development play a role?," Journal of Corporate Finance, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:corfin:v:74:y:2022:i:c:s0929119921002613
    DOI: 10.1016/j.jcorpfin.2021.102139
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    More about this item

    Keywords

    Financing choice; Trade credit; Interest-bearing loans; Inventories; Financial development; Financing constraints;
    All these keywords.

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G3 - Financial Economics - - Corporate Finance and Governance
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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