Abstract:

The relatively underdeveloped nature of the Chinese financial system implies the possibility of credit constraints for private enterprises, which often have to rely on alternative sources of finance rather than bank loans. One of these sources is trade credit (accounts payable and accounts receivable). Although limited access to bank credit may make it difficult for firms to pay the sunk costs needed to enter export markets, receiving trade credit or granting credit may ease the entry into foreign markets, but only up to a certain threshold. We find an inverted U-shaped relationship between accounts payable and accounts receivable and the likelihood to become an exporter for private firms and foreign owned enterprises.