Transportation infrastructure development and trade credit financing: Evidence from China

This paper relies on the launch of high speed railway services in China to examine the role that transportation infrastructure development plays in shaping firm trade credit financing. Utilizing a listed firm-level panel dataset over 2003–2020 in a difference-in-differences framework, we find that the capacity of listed firm trade credit financing improves after the launch of a high speed rail route to the city where the firm is located. This relationship holds under extensive sensitivity analysis, including when the instrumental variable estimation is utilized. Our results reveal the heterogeneous effects of high speed railway on firm trade credit financing ascribed to firm characteristics, such as firm size, financial condition, and reputation, and city characteristics, such as economic development. Moreover, this paper indicates that the connection to the high speed railway network generates a realignment of supplier-client relationship and attracts the attention by investigation reports and analysts, leading to an improvement in firm trade credit financing capacity. Our study sheds some light on transportation infrastructure development is beneficial to the improvement of market order in developing countries through the transmission of information.