Title: Inventory investment and the choice of financing in China: Does city-level financial development play a role?
Speaker: Dr. SHI Yukun (University of Leicester)
Time: Friday, May 26, 2017, 14:00
Venue: Room 202, South Wing, B10 Building, University Town Campus
Abstract: We investigate the extent to which Chinese firms make use of different formal and informal channels to finance their inventory investment. To this end, using a panel of 224,604 firms over the period 2004-2009, we estimate error-correction inventory investment models augmented with bank loans and trade credit. We find that both sources of finance have a significant and positive impact on inventory investment. Furthermore, we observe that the impact of bank credit (trade credit) is greater in cities characterized by higher (lower) financial development. This suggests that in the presence of weak financial development, trade credit substitutes for formal bank loans. We further show that this substitution effect is more pronounced for private firms, firms operating in less regulated and more competitive industries, firms located in southeastern regions, and financially constrained firms. Our results are robust to the use of a variety of specifications and estimation methods.
