An Empirical Research Of The Relationship Between Trade Credit And Enterprise Performance

As an indispensable part of modern finance and economy, trade credit becomes an important approach to enterprise management and financing activities. In the capital market of developed countries, trade credit occupies a vast majority of market credit, and plays an important role in enterprises. Foreign study of trade credit has a history of several hundred years, and concludes management motivation theory and financing motivation theory. From the view of management motivation, trade credit helps enterprises keep long~term cooperation, establish mutual trust, and reduce transaction costs. From the view of financing motivation, trade credit has more advantages in financing. The establishment of trade credit system in China begins since the implementation of the reform and opening policy. In addition, the imperfection of financial system in our country leads to the inadequate application of trade credit in enterprises. In recent years, domestic scholars start to pay more attention to the subject of credit, especially in credit rating and credit risk evaluation. However, the empirical study on the relationship between trade credit and enterprise performance is quite rare, especially under the condition of different enterprise property nature and different financial development level. In the long run, trade credit is not only an indispensable soft power of enterprise development, but also a core competitiveness of enterprises. Its function cannot be ignored. Making full use of trade credit gradually becomes a new method to improve enterprise performance. As far as we can see, trade credit has a good upside development potential in China. So it is theoretically and practically necessary to study the relationship between trade credit and enterprise performance.Currently, the trade credit problems in enterprises are increasingly prominent, such as producing fake and inferior commodities, providing false commercial information to induce cooperative firms or investors, breaking contracts and so on. Those practices are attributed to the pursuit of short~term interests, and do great harm to the improvement of enterprise performance and its future development. As we know, a company with high credit rating level, even if it is in trouble, can also be easy to get through the difficulties by getting a loan. To the contrary, when it is in trouble, the company with low credit rating level has to get a new loan to pay its earlier debts first. Then its management becomes even worse, and the financial crisis is unavoidable, which hinders the development of enterprise performance to some extent. Thus it can be seen, trade credit has an influence on enterprise performance. However, how does trade credit influence enterprise performance? What is the relationship between trade credit and enterprise performance? Then it is necessary to make it clear. By adopting empirical analysis, this essay makes a study on the relationship between trade credit and enterprise performance. Next, this essay makes a further analysis on the relationship between them from two perspectives of different enterprise property nature and different financial development level, and attempts to find out some new conclusions.In this paper, we select the data from China listed companies in SSE and SZSE as the study sample, and then we make an analysis on the relationship between trade credit and enterprise performance. At the same time, we plan to make a further study on the subject from different property nature and different financial development level perspectives. So we make three assumptions. Firstly, the relationship between trade credit and enterprise performance is positive. Secondly, compared to state~owned companies, trade credit of non~state~owned companies can better improve enterprise performance. Thirdly, compared to the area at lower financial development level, trade credit can better improve enterprise performance in the area at higher financial development level. To test the assumptions, we use empirical analysis method. At first, we select the samples and determine the variables. Next, we construct models and make descriptive statistics, correlation analysis and linear regression analysis. The empirical test results show that the relationship between trade credit and enterprise performance is positive. Compared to state~owned companies, trade credit of non~state~owned companies can better improve enterprise performance. Compared to the area at lower financial development level, trade credit can better improve enterprise performance in the area at higher financial development level. The three assumptions in this paper are firmly validated. To make sure the stability of our conclusion, we make robustness test, and the results are consistent with the main test. Finally, we summarize the conclusions of this paper and present some practical suggestions, such as accelerating the construction of social credit system and improving the organization system of trade credit, promoting financial reform and supporting the use of trade credit by strengthening the financial system, raising internal awareness of dishonest behaviors and so on. Meanwhile, we point out the inadequateness of the study.