Capacity Governance and Rebalance of Debt Structure: From the Perspective of the Relationship between Trade Credit and Bank Credit

Abstract

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 RD （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.