Efficiency of trade credit and bank finance: an ethnic minority area in China

Abstract

Using 1998–2008 firm-level microdata for industrial firms, we investigate the efficiency of financial intermediation through trade credit and bank loans in an ethnic minority area in China, the Xinjiang Uygur Autonomous Region. We find: (1) after receiving trade credit, ethnic minority firms tend not to repay it when they are financially distressed; (2) bank finance allocates more funds to more efficient ethnic minority firms while also allowing state-holding Han firms with worse performance levels to access bank loans; (3) efficient financial intermediation to ethnic minority firms is achieved through bank loans to relatively large firms.