Public Transfer of Equity and Enterprise Trade Credit: Evidence from China

Utilizing the full implementation of the National Equities Exchange and Quotations (NEEQ) in China in 2013 as an exogenous shock, this study explores the impact of public transfer of equity on the trade credit of micro, small, and medium-sized enterprises (MSMEs). We find that public transfer of equity leads to a reduction in MSMEs’ net trade credit. Mechanism analysis shows that the financing motivation mechanism and the expansion motivation mechanism are the main mechanisms at work. Heterogeneity analysis shows that this effect is stronger among MSMEs with weaker external financing needs, stronger market power and those belonging to highly competitive industries. Overall, this study provides regulators with a possible reference for the improvement of the emerging capital market system and the financial health of MSMEs by revealing the positive impact of capital market in the capital management.