TRADE CREDIT, FINANCIAL CONSTRAINTS AND MONETARY POLICY : EVIDENCE FROM CHINA

This article investigates the economic consequences of utilizing trade credit by examining whether trade credit reduces firms' financial constraints with data of Chinese listed firms. Empirical results show that trade credit has significant effect on reducing firms' financial constraints. Moreover, additional tests show that the impact of trade credit is more pronounced when firms face tight monetary policy. This work indicates that trade credit is an important instrument for financing in the emerging markets, especially when firms face more serious financial constraints due to outside shocks. And this study helps us have a better understanding of the economic consequences of trade credit.