Trade Credit, Future Earnings, and Stock Returns: A Self-Dealing Perspective

China Journal of Accounting Research, Vol. 2, No. 2, pp. 59-80, 2009

21 Pages Posted: 2 Apr 2010

See all articles by Jigao Zhu

Jigao Zhu

University of International Business and Economics

Guohua Jiang

Peking University - Guanghua School of Management

Date Written: March 31, 2010

Abstract

Chinese listed firms are characterized by a great magnitude of long-duration accounts receivable from controlling shareholders and their affiliates, and they often do not make bad debt allowances. On many occasions, these receivables are never collected. We find that firms with a great magnitude of accounts receivable demonstrate a low level of future profitability and low stock returns. It does not appear that the low earnings persistence of these firms is responsible for their poor future performance as predicted by the accrual anomaly, because the firms also report low concurrent earnings. In the context of the Chinese stock market, we interpret the results as being consistent with self-dealing through trade credit by controlling shareholders. This study contributes to the self-dealing literature by identifying a more subtle channel of expropriation of minority shareholders in China.

Keywords: Trade credit, Self-dealing, Minority shareholder interest, China

JEL Classification: G11, M48, G30

Suggested Citation

Zhu, Jigao and Jiang, Guohua, Trade Credit, Future Earnings, and Stock Returns: A Self-Dealing Perspective (March 31, 2010). China Journal of Accounting Research, Vol. 2, No. 2, pp. 59-80, 2009 , Available at SSRN: https://ssrn.com/abstract=1582342

Jigao Zhu (Contact Author)

University of International Business and Economics ( email )

Room 412, Ningyuan Building
Huixindong street 10
Beijing, 100029
China

Guohua Jiang

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China
+8610 62757930 (Phone)
+8610 62751470 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
141
Abstract Views
1,545
rank
287,531
PlumX Metrics