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Journal of Corporate Finance Vol. 74 2022

Inventory investment and the choice of financing: Does financial development play a role?

Junhong Yang1,2; Alessandra Guariglia3; Yuchao Peng4; Yukun Shi5,6

1 University of London · 2 SOAS University of London · 3 University of Birmingham · 4 Central University of Finance and Economics · 5 Adam Smith Institute · 6 University of Glasgow

open access

Abstract

This paper uses a panel of 224,604 Chinese firms over the period 2004–2009 linked with a set of unique city-level financial development data to examine how financial development affects the way corporate inventory investment is financed. We find that financial development enhances the use of interest-bearing loans and discourages the use of trade credit in financing inventory investment. These effects are more pronounced after the 2007 property rights reform, as well as for privately-owned firms, small firms, firms with no political connections, and firms located in coastal regions. Our results are robust to using a variety of different specifications, as well as different measures of financial development and estimation methods.

DOI
10.1016/j.jcorpfin.2021.102139
Volume
74
Pages
102139
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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