Trade Credit, Financing Structure and Growth

Transcription

1 Trade Credit, Financing Structure and Growth Junjie Xia Department of Economics University of Southern California Job Market Paper Jan. 12, 2017 Junjie Xia (USC-Economics) Trade Credit Job Market Paper 1 / 32

2 Outline Introduction Empirical Evidence Model Quantitative Analysis Conclusion Junjie Xia (USC-Economics) Trade Credit Job Market Paper 2 / 32

3 What I do Empirical Evidence Firms who relied more on trade credit grew faster before the financial crisis, but experienced a sharper decline after the crisis Sales growth became less responsive to the dependence of bank credit Theoretical Framework Two types of collateral constraints - bank credit and trade credit Trade credit could amplify underlying shocks Quantitative Analysis Simulate similar results as empirical findings Counterfactual exercises Junjie Xia (USC-Economics) Trade Credit Job Market Paper 3 / 32

4 Literature Review Empirical Studies Trade credit and growth Petersen and Rajan (1997); Fishman and Love (2003); Allen, Qian and Qian (2005); Coulibaly, Cull, Xu, and Zhu (2009); Saprize and Zlate (2012); Li, Lu, Ng, and Yang (2015). Trade finance and the great trade collapse Amiti and Weinstein (2011); Yang (2011); Chor and Manova (2012); Feenstra, Li and Lu (2014); Paravisini, Rappoport, Schuabl and Wolfenzon (2014); Auboin (2015) Domestic Distortions Chen, Tian and Yu (2016); Drozd, Giri and Xia (2016); Wu and Xia (2016); Junjie Xia (USC-Economics) Trade Credit Job Market Paper 4 / 32

5 Literature Review Theoretical Studies Trade Credit Petersen and Rajan (1997); Burkart and Ellingsen (2004); Klapper, Laeven and Rajan (2012); Olsen (2013); Ahn (2015); Antràs and Foley (2015). Financial Friction Kiyotaki and Moore (1997); Jermann and Quadrini (2012); Cooley, Marimon, and Quadrini (2004, 2014); Bigio and La O (2016); Dual-conllateral-constraints Rampini and Viswanathan (2015) Junjie Xia (USC-Economics) Trade Credit Job Market Paper 5 / 32

6 Data Annual Surveys of Manufacturing Enterprises by the NBSC annual sales 500 RMB (about 70,000 USD in 2007) detailed firm-level information: identification; operation; balance sheet cross-section data construct a panel (Brandt, Biesebroeck, and Zhang, 2012): 1.7 millions observations; 51,743 permanent firms Junjie Xia (USC-Economics) Trade Credit Job Market Paper 6 / 32

7 Empirical Motivation Figure 1: Sales Growth across Different Quintiles of the Use of External Finance Junjie Xia (USC-Economics) Trade Credit Job Market Paper 7 / 32

8 Empirical Strategy Difference-in-difference approach Post: = 1 if year = 2009 T Ci : the mean of trade credit of firm i overtime BC i : the mean of bank credit of firm i overtime (T C i,2004 and BC i,2004 ) X i,t : trade credit, bank credit, age, size, employment, inventory δi : firm fixed effect Focus on β 4 and β 5 Junjie Xia (USC-Economics) Trade Credit Job Market Paper 8 / 32

9 Empirical Results Baseline regressions for permanent exporters Robustness Checks (Placebo; IV; Time trend; Size) Junjie Xia (USC-Economics) Trade Credit Job Market Paper 9 / 32

10 Empirical Results Non-exporting V.S. Exporting; State-owned V.S. Private Junjie Xia (USC-Economics) Trade Credit Job Market Paper 10 / 32

11 Evidence to Theory Three stylized facts Firms with higher leverage on trade credit grow faster Firms that made greater use of trade credit experience a sharper decline in sales growth after the financial crisis. The relevancy of bank credit during the financial crisis instead is not significant. The magnitude of the impact of the financial crisis on growth increases with exporting intensity A simple two-period model Two types of financial contracts - bank credit and trade credit Trade credit - capital and sales as collateral Nash bargaining Junjie Xia (USC-Economics) Trade Credit Job Market Paper 11 / 32

12 The Model Three types of agents (Rampini and Viswanathan (2015)) The bank: β b ; deep-pockets; R = 1 β b The supplier: β s ; intermediate goods producer x = g(k s ) initial wealth w s ; pays dividends d s and d s borrows from the bank b s at R ; The exporter: βe ; final goods producer y = A f(k e, x) initial wealth w e ; pays dividends d e and d e borrowing from the bank b e at R ; and from the supplier b x at R e Assumption 1: β e < β s < β b Trade credit: R e(1 α)x with R e > R Two financial contracts - bank credit and trade credit Junjie Xia (USC-Economics) Trade Credit Job Market Paper 12 / 32

13 Timing Figure 2: The Exporter s Timing Junjie Xia (USC-Economics) Trade Credit Job Market Paper 13 / 32

14 Financial Contracts A bank credit financial contract between an agent {i s, i e } and a bank consists of lending {b s, b e} and the interest rate {R }, and satisfies the condition on collateral constraints. ξ b (1 δ)k s R b s or ξ b (1 δ)k e R b e A trade credit financial contract between an exporter and a supplier consists of downpayment {αx}, lending {b x} and interest rate {R e}, and satisfies the condition on the collateral constraint. (ξ s ξ b )(1 δ)k e + φ s Af(k s, x) R e(1 α)x, ξ s > ξ b Junjie Xia (USC-Economics) Trade Credit Job Market Paper 14 / 32

15 Agents Problem The resale ability on sales position Case 1: (ξ s ξ)(1 δ)k e R eb x Case 2: (ξ s ξ)(1 δ)k e + φ s Af(k e, x) R eb x Production: x = αk θ s and f(k e, x) = (k θ e) γ x 1 γ ; Resale ability: φ s = ξ s ξ; No depreciation: δ = 0 Nash bargaining - α and R e Junjie Xia (USC-Economics) Trade Credit Job Market Paper 15 / 32

16 Nash Bargaining Junjie Xia (USC-Economics) Trade Credit Job Market Paper 16 / 32

17 Solution Junjie Xia (USC-Economics) Trade Credit Job Market Paper 17 / 32

18 Discussion Initial wealth (i) α w e > 0 and α w s < 0, (ii) R e w e > 0 and R e w s < 0. Impact of the current shock on output y A > 0. input-output structure y = A(ke θ ) γ (ks θ ) 1 γ = A ( γω ) θγx. 1 γ Junjie Xia (USC-Economics) Trade Credit Job Market Paper 18 / 32

19 Parameterization Cobb-Douglas factors shares - literature θ = Brandt, Hsieh, and Zhu (2008) γ = Charles Jones (2011) Discount factors - data βb = , β s = , β e = and δ = 1.4% Resale ability - data and borrowing constraints ξ = and ξs = Resale ability - data and borrowing constraints ξ = and ξs = Bargaining power - model solution and data η = 1 2 The productivity shock - production function Junjie Xia (USC-Economics) Trade Credit Job Market Paper 19 / 32

20 Sales growth Model V.S. Data Junjie Xia (USC-Economics) Trade Credit Job Market Paper 20 / 32

21 Trade Credit Sales growth across different quintiles of trade credit Junjie Xia (USC-Economics) Trade Credit Job Market Paper 21 / 32

22 Simulation I Matching the empirical finding Junjie Xia (USC-Economics) Trade Credit Job Market Paper 22 / 32

23 Simulation II Changing the exporter s initial wealth Junjie Xia (USC-Economics) Trade Credit Job Market Paper 23 / 32

24 Simulation III Changing the supplier s resale ability Junjie Xia (USC-Economics) Trade Credit Job Market Paper 24 / 32

25 Counterfactual I Sales cannot used as collateral Model Solution Junjie Xia (USC-Economics) Trade Credit Job Market Paper 25 / 32

26 Counterfactual II A frictionless economy Model Solution Junjie Xia (USC-Economics) Trade Credit Job Market Paper 26 / 32

27 Counterfactual III A more developed financial market Model Solution Junjie Xia (USC-Economics) Trade Credit Job Market Paper 27 / 32

28 Conclusion Document new empirical evidence firms made more use of trade credit experience sharper decline on sales growth during the financial crisis the dependence of bank credit seems to be irrelevant A dual-collateral-constraint model Trade credit is more vulnerable than bank credit Trade credit amplifies the impact of underlying shocks Policy implications Junjie Xia (USC-Economics) Trade Credit Job Market Paper 28 / 32

29 Counterfactual I Sales cannot be used as collateral Back Collateral constraint on trade credit: (ξ s ξ)ˆk e R e(1 α)ˆk s θ Solution Junjie Xia (USC-Economics) Trade Credit Job Market Paper 29 / 32

30 Counterfactual III A more developed financial market Back Collateral constraints on bank credit and trade credit Solution Junjie Xia (USC-Economics) Trade Credit Job Market Paper 30 / 32

31 The Case of U.S. U.S. manufacturing firms (Computstat) Back Junjie Xia (USC-Economics) Trade Credit Job Market Paper 31 / 32

32 Measuring trade credit in 2006 Sales growth across different quintiles of trade credit Back Junjie Xia (USC-Economics) Trade Credit Job Market Paper 32 / 32