This paper examines the role of political affiliation in the extension of trade credit by Chinese firms. We find that politically affiliated firms extend more trade credit to their business partners than their non-affiliated counterparts. In addition, the impact of political affiliation on trade credit extension via short-term debt is larger for firms more constrained in their access to external funding, namely private firms producing differentiated goods.
This paper examines the role of political affiliation in the extension of trade credit by Chinese firms. Using a dataset of over 70,000 firms over the period 2000-2007, we find that, because they benefit from easier access to short-term external funding, politically affiliated firms can extend more trade credit to their business partners than their non-affiliated counterparts. In other words, politically affiliated firms redistribute bank funding via trade credit. Furthermore, the sensitivity of trade credit extension to short-term debt is largest for non-affiliated private firms producing differentiated goods, which are more constrained in their access to external funding.
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Alessandra Guariglia and Simona Mateut
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