The Chinese University of Hong Kong-Tsinghua University Joint Research Center for Chinese Economy 清華大學-香港中文大學中國經濟聯合研究中心 - Does Trade Credit Boost Firm Performance? The Chinese University of Hong Kong-Tsinghua University <br/>Joint Research Center for Chinese Economy 清華大學-香港中文大學中國經濟聯合研究中心
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Does Trade Credit Boost Firm Performance?
Dongya Li, Yi Lu, Travis Ng, Jun Yang

Some firms have achieved good performance in developing countries where the financial sector is far from established. One explanation in the literature is that these firms benefit from trade credit, a form of informal financing. Using a survey of firms in China conducted by the World Bank in early 2003, this article examines whether trade credit indeed boosts firm performance. Our ordinary least squares results show that trade credit is significantly and positively correlated with firm performance. However, using the instrumental variable approach to address endogeneity, we find that the statistical significance disappears. The results are robust to a series of robustness checks, casting doubt on the claim that trade credit boosts firm performance.

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0015
Does Trade Credit Boost Firm Performance?
Dongya Li, Yi Lu, Travis Ng, Jun Yang

Some firms have achieved good performance in developing countries where the financial sector is far from established. One explanation in the literature is that these firms benefit from trade credit, a form of informal financing. Using a survey of firms in China conducted by the World Bank in early 2003, this article examines whether trade credit indeed boosts firm performance. Our ordinary least squares results show that trade credit is significantly and positively correlated with firm performance. However, using the instrumental variable approach to address endogeneity, we find that the statistical significance disappears. The results are robust to a series of robustness checks, casting doubt on the claim that trade credit boosts firm performance.

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