Using a policy requiring state-own legal-person shareholders to sell or transfer 10% of their shares to National Social Security Fund as instrument, I demonstrate a causal effect of total state-owned corporate shares on trade credit using Difference in Difference. I find that the proportion of state-owned corporate share is both negatively correlated with the amount of trade credit issued as well as received by firms. A 1% decrease in state-owned corporate share leads to a 0.35% increase in trade credit issued and a 0.29% increase in trade credit received. The increase of reliance on trade credit suggests that the decrease of state-owned corporate share brings compounded effects. On one hand, it can lead to less access to finance; On the other hand, it increases cost of enforcement of d...[ Read more ]

Using a policy requiring state-own legal-person shareholders to sell or transfer 10% of their shares to National Social Security Fund as instrument, I demonstrate a causal effect of total state-owned corporate shares on trade credit using Difference in Difference. I find that the proportion of state-owned corporate share is both negatively correlated with the amount of trade credit issued as well as received by firms. A 1% decrease in state-owned corporate share leads to a 0.35% increase in trade credit issued and a 0.29% increase in trade credit received. The increase of reliance on trade credit suggests that the decrease of state-owned corporate share brings compounded effects. On one hand, it can lead to less access to finance; On the other hand, it increases cost of enforcement of debt. When encountered with state share decrease, the disadvantage of higher enforcement cost may outweigh that of negative liquidity shocks.