Government contracts drive corporate trade credit growth through enhanced financial access and scale
Shanghai Jiao Tong University Journal CenterThis study investigates the impact of government procurement contracts on the trade credit strategies of Chinese listed firms from 2015 to 2022. Employing a two-way fixed effects model and a comprehensive set of robustness checks—including instrumental variable estimation, Heckman two-stage correction, propensity score matching, and placebo tests—the research demonstrates that securing government procurement contracts significantly increases firms’ provision of trade credit to customers. This effect is primarily driven by improved access to bank loans, increased government subsidies, and expanded production capacity, especially for contracts awarded by local or city governments. Furthermore, government procurement reduces customers’ demand for trade credit. By identifying government procurement as an “institutional signal” that operates through credit endorsement and scale economy channels, this study offers new insights into the determinants of trade credit and the broader economic influence of public sector contracting.
- Journal
- China Finance Review International