The supply chain financing role of government's stock purchase rescue policy: Stock market stabilization funds and trade credit financing of Chinese listed firms

Abstract

Few studies on trade credit financing have addressed the government's specific behaviors or policies that support the healthy development of the stock market, even though the healthy development of the stock market will ultimately exert influence on the cooperative trust relationship between listed firms and upstream and downstream firms (UDFs) and consequently affect the listed firms' trade credit financing. Therefore, the research on trade credit financing cannot ignore the influences from the governmental behaviors that support the healthy development of the stock market, especially the government bailout programs. We use the introduction of the stock market stabilization funds (SMSFs) by the China Securities Regulatory Commission (CSRC) in 2015 as an external shock, finding that SMSFs can significantly enhance trade credit financing, implying that China's SMSFs have a supply chain financing promotion effect. The channel tests reveal that enhancing insider governance and the eye-catching star effect, reducing corporate operation risk, and improving accounting information quality are crucial channels for SMSFs to increase trade credit financing. Additionally, we discover that the positive effect of the SMSFs to enhance corporate trade credit financing is stronger when the level of SMSFs' shareholding is higher, SMSFs increase their shareholdings, SMSFs are among the top 10 shareholders and there are multiple SMSFs major shareholders. We also find that SMSFs have a higher beneficial impact on trade credit financing when a firm has weaker corporate governance, more severe financing constraints, and faces higher economic policy uncertainty (EPU). Furthermore, we find that SMSFs can increase corporate value while optimizing supply chain financing. Overall, we link the literature on government rescue, SMSFs, and trade credit financing. We broaden the study of the influencing factors on trade credit financing from the dual perspectives of governmental rescue actions that promote the stock market's healthy development and state-owned special institutional investors. Also, our research will help to deepen the understanding of the positive effects of China's SMSFs and offer valuable lessons for other East Asian or emerging economies.