Correlations Between Trade Credit, Bank Credit And Cash Holdings

The decision of the amount of cash holdings is an important issue of corporate cash management.Because it not only affects the normal operation of the corporate, but also is closely related to the behavior of corporate investment and financing.It affects corporate’s entire management strategy. With the growing importance of cash holding’s decision, western scholars are increasingly concerned about the empirical research of cash holdings.On the other hand, inter-enterprise trade credit financing is a viable alternative mechanism of bank credit under the environment of financing constraints.It broadens financing channels for enterprises,and accelerates the company’s cash flow.Therefore, trade credit has effect on cash holdings. In addition,at different regions under different levels of financial deepening,the sensitivity will be different.And our country’s accounts receivable pledge policy can serve as a reflection of financial deepening. Therefore, it is very meaningful to study the impact of trade credit to cash holdings both for theory and practice.Firstly,this paper analyzes trade credit and cash holdings theoretically.Then,it builds models between trade credit,other factors and cash holdings from two main lines,i.e trade credit and bank credit level.It researches the relationship between trade credit, bank credit level and cash holdings empirical ly.This paper describes the trade-off theory, pecking order theory, credit rationing theory and transaction cost theory firstly.And then it explores the relationship between trade credit and cash holdings, the impact of bank credit level and accounts receivable pledge policy on cash holdings.In addition,it adds two dummy variables,i.e related party transactions and state holding,studying the sensitivity of cash holdings to these variables. Finally,it puts forwards that trade credit,including accounts receivable and payable,have an asymmetric impact on cash holdings. Meanwhile,at regions of higher bank credit level,firms hold less cash payable to deal with accounts payable,but they can replace more receivables with the same amount of cash.