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Creditor protection and trade credit financing: Evidence from a quasi-natural experiment in China

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  • Wang, Shihao
  • Wang, Jiamin
  • Sahil Maqsood, Umer
  • Wang, Keyun
  • Li, Qian

Abstract

Based on the listed firms in China's A-share stock market from 2012 to 2021, we investigate the relationship between the introduction of bankruptcy courts and trade credit financing. The empirical results show that firms obtain more trade credit after the introduction of bankruptcy courts in their location. This finding is robust to a series of endogeneity and robustness checks. We further find that the effect of bankruptcy courts on trade credit financing is more pronounced when the firm has a greater distance from its suppliers and higher financial distress. Overall, our findings show the positive effect of the introduction of bankruptcy courts and have important implications for policymakers in emerging markets.

Suggested Citation

  • Wang, Shihao & Wang, Jiamin & Sahil Maqsood, Umer & Wang, Keyun & Li, Qian, 2023. "Creditor protection and trade credit financing: Evidence from a quasi-natural experiment in China," Finance Research Letters, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:finlet:v:57:y:2023:i:c:s1544612323005986
    DOI: 10.1016/j.frl.2023.104226
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    More about this item

    Keywords

    Bankruptcy courts; Trade credit; Supply chain; Creditor protection; China;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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