Abstract:
Credit rating downgrades may exacerbate corporate credit financing constraints, making it worthwhile to investigate how firms utilize trade credit to cope with liquidity shocks and ensure stable supply chain operations. Using Shanghai and Shenzhen A-share listed companies with entity credit ratings as our sample, this study finds that firms experiencing credit rating downgrades tend to obtain upstream trade credit financing in the form of accounts payable, and this finding remains robust after addressing concerns of reverse causality, omitted variables, and sample selection bias. Our analysis indicates that firms with credit ratings typically occupy core positions within supply chains. In a market characterized by excess supply over demand, suppliers are generally more motivated to extend trade credit as a means of establishing long-term cooperative relationships and expanding market share. Furthermore, compared with notes payable, accounts payable feature lower costs and greater flexibility, and suppliers tend to choose trade credit provision methods more favorable to clients to maintain customer relationships. Extended analyses reveal the following: First, enterprises with lower credit rating levels and weaker market positions, as well as those located in cities with better social credit environments and higher degrees of marketization, are more inclined to increase trade credit financing upon credit rating downgrades. Second, the increase in accounts payable represents merely a short-term relief measure rather than long-term appropriation of upstream funds; enterprises experiencing rating downgrades subsequently reduce upstream trade credit financing after rating upgrades. Third, upon credit rating downgrades, the increase in accounts payable, on the one hand, optimizes inventory turnover efficiency, ensures continuity in production and sales processes, and enhances product flow efficiency within supply chains; on the other hand, it reduces capital outflows, allocates funds to areas with higher marginal returns, and improves capital flow efficiency within supply chains. This study provides insights for understanding the interactive relationship between formal and informal financing, and offers implications for enhancing corporate supply chain efficiency and resilience.
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