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

Junhong Yang, Alessandra Guariglia, Yuhao Peng, Yukun Shi

Research output: Contribution to journalArticlepeer-review

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
JournalJournal of Corporate Finance
Publication statusAccepted/In press - 28 Nov 2021

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