Supplier Finance or Bank Loans? An Empirical Research Based on Enterprises in China

Supplier finance along with bank loans has become the main source of external financing for short-term corporate funding. However, the relationship between bank loans and supplier finance in corporate financing process has been a hot debate for a long time. International research suggests that there is either complementary or alternative relationship between the two external financing methods. In this paper, we are more inclined to the first opinion, namely, that the relationship between supplier finance and bank loans is alternative but not complementary. We use econometric and statistical methods to examine the dynamics of firm's short-term financing choice between supplier finance and bank loans. Based on the special financial environment in China, we have looked into 235 companies which are listed on the stock exchanges of Shanghai and Shenzhen, studying the relationship between trade credit and bank loans in the above-mentioned companies. We have established a model on the basis of previous studies, taking into account the liquidity index (which can influence the solvency of the enterprise), the growth index (which shows the development potential of the enterprise) and enterprise scale. In the equation, accounts payable is treated as the dependent variable while the variable is bank loan. The empirical analysis shows that the relationship between trade credit and bank loans is significantly alternative. As an alternative resource of bank loans, trade credit is more widely used by the company.