During the period of 2003-2015, the relationship of trade credit and bank credit financing of Chinese industrial enterprises above a designated size showed a significant " complementary” growth pattern, being in sharp contrast to the extrude expectation under traditional " alternative financing” theory. Although the complementary patter can be explained by traditional " signaling theory”, this theory still does not sufficiently explain why trade credit grows in units combing with much more growth of bank credit, and why enterprise debt structure increasingly skews towards bank credit, especially when the GFC led the bank sector to a renewed bout of risk aversion and reduced the willingness of commercial banks to identify the " signaling effect”. The above background determines the following research tasks. Firstly, in addition to the western " signaling effect” hypothesis, how to construct a new complementation logic （e.g. capacity-driven hypothesis） is studied to explain why the relationship between bank credit and trade credit is dynamically transformed from substitution to complementation, and why bank credit, instead of being crowding out, eventually takes on more radical growth, which in turn leads to firm debt structure shifting toward bank loans. These introspections contribute to the localization interpretation of corporate debt structure distortion as well as to the formation mechanism of the rising level of bank credit dependence. Secondly, by observing the evolution characteristics （e.g. threshold value, magnitude of complementation coefficient） of corporate debt structure imbalance through subgroup tests and comparing their coefficient differences, the determinants which are able to adjust firms’ bank credit dependence and rebalance firm debt structure can be found out. These introspections contribute to the optimization of credit policies that aim to optimize firm debt structure, and correct firms’ bank credit distortion. On the basis of a literature review and the introspection of complementary logic, this paper puts forward the " capacity-driven hypothesis”, and investigates the determinants of firm debt structure distortion by introducing adjustment cost and R&D innovation. Using the data of Chinese manufacturing firms from 2003 to 2014, we develop a panel threshold model （Hansen, 1999） and obtain the following conclusions: firstly, the relationship between trade credit financing and bank credit financing is dynamically transformed from substitution to complementation when a firm’s production capacity goes beyond the first thresholdγ1, and the complementation coefficient （the bank credit changes corresponding to the trade credit growth in unit） moves forward to a higher level when capacity level goes beyond the second threshold γ2. The second " forward mutation” of complementation coefficient means that further capacity distortion makes corporate debt structure quickly shift to bank credit, which in turn contributes, from the perspective of capacity governance, to the understanding of the formation mechanism of firms’ bank credit dependence. Secondly, the rebalance ability of firm debt structure varies with types of firms. More specifically, firms with high R&D investment or lower adjustment costs are more capable of adjusting debt structure distortion and reducing their dependence on bank credit by implementing capacity governance. This subgroup test result reveals that our macro policy, with the intention of correcting debt structure distortion, has to renew the concern about innovation incentive and adjustment cost smoothing. The potential contributions of this paper are: （1）it has implications for complementation theory and helps to understand the micro-mechanism and transformation condition （threshold reference） of debt structure dynamics in the context of the Chinese economy by proposing the " capacity-driven hypothesis” （rather than traditional signaling hypothesis）; （2） it reveals, through the introspection and empirical subgroup test, the impacts of R&D investment and adjustment costs on reducing offset of financial structure. This facilitates the optimization of credit policy.
Capacity Governance and Rebalance of Debt Structure: From the Perspective of the Relationship between Trade Credit and Bank Credit
Journal of Finance and Economics Vol. 44, Issue 02, pp. 29 - 43 (2018) DOI:10.16538/j.cnki.jfe.2018.02.003
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Cite this article
Yu Bo, Gary Gang Tian. Capacity Governance and Rebalance of Debt Structure: From the Perspective of the Relationship between Trade Credit and Bank Credit[J]. Journal of Finance and Economics, 2018, 44(2): 29–43.
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