Bank Loans and Trade Credit Under China's Financial Repression

28 Pages Posted: 30 Oct 2009

See all articles by Julan Du

Julan Du

The Chinese University of Hong Kong (CUHK) - Department of Economics

Zhigang Tao

The University of Hong Kong - School of Business

Yi Lu

School of Business, University of Hong Kong

Date Written: September 2008

Abstract

China has maintained a financial system with favorable treatments toward state-owned enterprises. Albeit having been denied access to formal financing such as bank loans, China's non-state firms have grown rather fast. China's experience has often been interpreted as indicating that alternative informal financing channels such as trade credit can substitute for formal financing and support firm growth. In this study, we systematically compare the relative importance of bank loans and trade credit in promoting firm performance and firm growth, and find that access to bank loans is more important than does availability of trade credit. Our results imply that firms cannot get around financial repression through alternative financing channels, and suggest that it is an imperative to dismantle the financial repression regime so as to promote firm growth and performance.

Keywords: Bank Loans, Trade Credit, Firm Performance, Firm Growth, Financial Repression

JEL Classification: P34, O17, O16, G32

Suggested Citation

Du, Julan and Tao, Zhigang and Lu, Yi, Bank Loans and Trade Credit Under China's Financial Repression (September 2008). Available at SSRN: https://ssrn.com/abstract=1495600 or http://dx.doi.org/10.2139/ssrn.1495600

Julan Du

The Chinese University of Hong Kong (CUHK) - Department of Economics ( email )

Shatin, N.T.
Hong Kong

Zhigang Tao

The University of Hong Kong - School of Business ( email )

Meng Wah Complex
Pokfulam Road
Hong Kong
China
(852) 2857-8223 (Phone)
(852) 2858-5614 (Fax)

Yi Lu (Contact Author)

School of Business, University of Hong Kong ( email )

Rm 730, Meng Wah Complex
Pokfulam Road
Hong Kong
Hong Kong
(852) 2241-5245 (Phone)
(852) 2858-5614 (Fax)

HOME PAGE: http://www.fbe.hku.hk/~luyi

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