Diversification, Bank Credit and Trade Credit Offering——The Effect of Financing Constraints and Economic Cycle

Abstract

Abstract:

Using the indexes of Herfindahl-Hirschman Index, Entropy Index(HHI, EI)and the Logarithmic number of cross-industry(ln(N))as the measures for diversification, we empirically test the effect of diversification on the trade credit of listed companies in China. The results shows that the firms that access to bank more easily provide more trade credit and diversification improves the offering of trade credit by increasing the company access to bank credit. In addition, this paper finds that the increasing effect generated by diversification is more significant in firms with higher financing constraints and in recession period. This study will not only have great significance for understanding the relationship between bank credit and the trade credit offering in diversified companies, but also provide evidence for explaining why financing constraints of diversified companies tend to reduce.

Key words: diversification, bank credit, trade credit, financing constraints, economic cycle

Wu Haomin, Wang Jie, Mai Sheng. Diversification, Bank Credit and Trade Credit Offering——The Effect of Financing Constraints and Economic Cycle[J]. , 2017, 29(10): 223-233.

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