Trade credit

Financial system

Algorithm

Accounts payable

Creditor

China

Computer science

Payment

Business

Debt financing

Political science

Debt

Loan

Finance

State (computer science)

Research in International Business and Finance

This study examines the financing/funding of private firms in China. Our results show that private firms are significantly less funded through formal financing channels such as bank loans than state-owned firms, and hence have to resort to alternative financing such as trade credit. Consistent with the theoretical expectation and literature, there is a substitution effect between trade credit and bank loans for private firms, but this effect is much weaker compared to that of state-owned firms. Moreover, while the univariate comparisons indicate that private firms obtain more notes payable than state-owned firms, the multivariate regression analyses show that the relation between bank loan and notes payable is positive and indifferent between private and state-owned firms.

Ownership discrimination and private firms financing in China