A Study Of Trade Credit Relieving Financing Constraints

High financing cost and unclear financing channels had been plaguing companies for a long time, especially for the private enterprise and SMEs, China’s fast-expanding real economy has also been affected by the financing problem. Financing constraints may result in underinvestment problem, therefore impair the operation efficiency and value of companies seriously. Researchers believe that there are two ways to solve the Financing constraints problem,one is to improve the financing environment, the other is broaden the financing channels. Trade credit is a typical example that companies can obtain short-term financing from operating activities, so as to ease financing constraints. Apparently, trade credit belongs to the way two: broaden the financing channels. Enterprises use commercial credit not only for operating reason, but also for financing motivation, in imperfect financial markets such as China, trade credit has become an important short-term financing tool,for it not just raised money for daily activity, but supply fund for long-term investment. Therefore, as a supplement to formal financial, trade credit can relieve financing constraints.This paper studies how the trade credit affect financing constraints. Based on the “cash- cash flow sensitivity ”model,and at the same time, using all the A- share listed companies in China from 2003 to 2012 as a sample, this paper do a research on how trade credit worked in different internal and external conditions, like different enterprises, different economic and financial environment. The research result is as follow: ①As a complement to financing channels of enterprises, trade credit can provide enterprises with financial resources, and also send a positive signal to the market, thus reducing the cash-cash flow sensitivities and ease financing constraints. ② Trade credit worked different on financing constraints in different enterprises. Because soft budget constraint, credit rationing and so on, state-owned enterprises can obtain funding from commercial banks, while private enterprises can’t, so trade credit’s role in private enterprises is statistically significant; in terms of business scale, Large enterprises have more collateral, get a smoother access to bank credit, so trade credit easing effects in small business is statistically significant, while in large enterprises is not. ③Macroeconomic volatility and finance development also have an effect on the relation between trade credit and financing constraints. In upswing period, overall economy developed well, reliance on commercial credits as a financing channel decreased, trade credit worked non significant in financing constraints; in areas with low degree of financial marketization, the fund-raising environment is bleak. and market allocation of credit is low, enterprises may not get money from market, then turn to other financing channels like business credit, so trade credit plays significant in relieving the constraints in areas with low levels of financial developmentThese findings can give the companies which are suffering financing constraints some good suggestion to resolve the financing problem, help enterprises seek effective measures to ease financing constraints based on their own property, the size and the economic environment.