Exploiting the mandatory implementation of the economic value added (EVA) appraisal reform among central state-owned enterprises (CSOEs) in China in 2010 as a quasi-natural experiment, this study investigates the effect of managerial incentives on firms' use of trade credit financing. Using a sample of CSOEs and non-state-owned enterprises (non-SOEs) listed on China's A-share market, we find that CSOEs use more trade credit than non-SOEs after the adoption of the EVA appraisal reform. This effect is more pronounced for CSOEs in non-strategic industries or in industries with intense competition; for CSOEs with underperforming EVA, with a lower actual cost of debt, or without political connections; and for CSOEs whose managers are in the last year of their assessment tenure. Furthermore, after the mandatory reform, the increased use of trade credit financing significantly improves the EVA performance of CSOEs, thereby further increasing executive compensation. These results suggest that CSOE managers with strong incentives use nominal interest-free trade credit financing to enhance EVA performance. Our study provides a new explanation for the differences in trade credit financing among firms with different property rights and has implications for investigating the role of managerial incentives in informal financing decisions.

In portfolio risk minimization, the inverse covariance matrix of returns is often unknown and has to be estimated in practice. Yet the eigenvalues of the sample covariance matrix are often overdispersed, leading to severe estimation errors in the inverse covariance matrix. To deal with this problem, we propose a general framework by shrinking the sample eigenvalues based on the Schatten norm. The proposed framework has the advantage of being computationally efficient as well as structure-free. The comparative studies show that our approach behaves reasonably well in terms of reducing out-of-sample portfolio risk and turnover.