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

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

No 2020-14, Discussion Papers from University of Nottingham, GEP

Abstract: Using a panel of 224,604 Chinese firms over the period 2004-2009, together with a set of unique city-level financial development data, we document a positive and significant association between both bank loans and trade credit and inventory investment. Furthermore, we find that in cities with relatively high (low) financial development, firms rely more on bank loans (trade credit) to finance their inventory investment. Finally, we show that the moderating effect played by financial development on the association between bank loans/trade credit and inventory investment is more pronounced for firms more likely to face financing constraints, namely privately-owned, small firms, with no political connections, located in coastal regions. Our results are robust to using a variety of different specifications and estimation methods.

Keywords: Financing choice; Trade credit; Bank loans; Inventories; Financial development; Financing constraints (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-cfn, nep-fdg and nep-tra
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Journal Article: Inventory investment and the choice of financing: Does financial development play a role? (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:not:notgep:2020-14

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