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Managerial incentives and trade credit: Evidence from China's EVA appraisal reform among CSOEs

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  • He, Yang
  • Pang, Xin
  • Wang, Kemin

Abstract

Exploiting the mandatory implementation of the economic value added (EVA) appraisal reform among central state-owned enterprises (CSOEs) in China in 2010 as a quasi-natural experiment, this study investigates the effect of managerial incentives on firms' use of trade credit financing. Using a sample of CSOEs and non-state-owned enterprises (non-SOEs) listed on China's A-share market, we find that CSOEs use more trade credit than non-SOEs after the adoption of the EVA appraisal reform. This effect is more pronounced for CSOEs in non-strategic industries or in industries with intense competition; for CSOEs with underperforming EVA, with a lower actual cost of debt, or without political connections; and for CSOEs whose managers are in the last year of their assessment tenure. Furthermore, after the mandatory reform, the increased use of trade credit financing significantly improves the EVA performance of CSOEs, thereby further increasing executive compensation. These results suggest that CSOE managers with strong incentives use nominal interest-free trade credit financing to enhance EVA performance. Our study provides a new explanation for the differences in trade credit financing among firms with different property rights and has implications for investigating the role of managerial incentives in informal financing decisions.

Suggested Citation

  • He, Yang & Pang, Xin & Wang, Kemin, 2025. "Managerial incentives and trade credit: Evidence from China's EVA appraisal reform among CSOEs," Journal of Corporate Finance, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:corfin:v:94:y:2025:i:c:s0929119925000793
    DOI: 10.1016/j.jcorpfin.2025.102811
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    Keywords

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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