Inventory investment and the choice of financing: does financial development play a role?

Junhong Yang, Alessandra Guariglia, Yuhao Peng, Yukun Shi

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Abstract

This paper uses a panel of 224,604 Chinese firms over the period 2004-2009 linked with a set of unique city-level financial development data to examine how financial development affects the way corporate inventory investment is financed. We find that financial development enhances the use of interest-bearing loans and discourages the use of trade credit in financing inventory investment. These effects are more pronounced after the 2007 property rights reform, as well as for privately-owned firms, small firms, firms with no political connections, and firms located in coastal regions. Our results are robust to using a variety of different specifications, as well as different measures of financial development and estimation methods.
Original languageEnglish
Article number102139
JournalJournal of Corporate Finance
Volume74
Early online date8 Feb 2022
DOIs
Publication statusE-pub ahead of print - 8 Feb 2022

Keywords

  • Financial development
  • Financing choice
  • Financing constraints
  • Interest-bearing loans
  • Inventories
  • Trade credit

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