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Preventive regulatory enforcement and access to trade credit: Evidence from a quasi-natural experiment

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  • Cao, Feng
  • Li, Haitong
  • Zhang, Xueyan
  • Zou, Hong

Abstract

Leveraging the China Securities Regulatory Commission's annual random inspection exercise as a quasi-natural experiment, we document that the risk scrutiny of preventive regulatory enforcement creates regulatory uncertainty about inspected firms to business partners, leading them to reduce the provision of trade credit. Reduced access to trade credit is more pronounced for firms with weak bargaining power, high opacity, or low financial resilience. Reduced access is also evident in both ‘compliant’ and non-compliant firms, though the reduction gradually subsides as uncertainty dissipates in different ways for the two types of inspected firms. Our findings uncover an important unintended effect of preventive regulation and have implications for policy making.

Suggested Citation

  • Cao, Feng & Li, Haitong & Zhang, Xueyan & Zou, Hong, 2026. "Preventive regulatory enforcement and access to trade credit: Evidence from a quasi-natural experiment," Journal of Corporate Finance, Elsevier, vol. 96(C).
    • Handle: RePEc:eee:corfin:v:96:y:2026:i:c:s0929119925001233
    DOI: 10.1016/j.jcorpfin.2025.102855
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