Abstract
AbstractResearch Question/IssueRelying on enhanced market power and improved information environment associated with institutional cross‐ownership, this paper examines the relation between institutional cross‐ownership and trade credit in China.Research Findings/InsightsListed firms with cross‐ownership can obtain more trade credit. The main conclusion is robust when we consider endogeneity problems, alternative measures of institutional cross‐ownership, and the effect of a financial crisis. Further, we perform several tests to examine the influencing mechanisms, confirming that the positive relation between institutional cross‐ownership and trade credit is more pronounced for listed firms in more competitive industries, or with poorer information environment. Further analysis also finds that the positive effect of institutional cross‐ownership on trade credit is more prominent for listed firms with fewer bank loans.Theoretical/Academic ImplicationsThis paper emphasizes information sharing and cooperation among listed firms with institutional cross‐ownership and argues that the information improvement effect is a relatively more important mechanism in affecting listed firms' decisions.Practitioner/Policy ImplicationsChina's market‐oriented reform is in progress and shows some weaknesses in corporate governance and investor protection. The research focusing on institutional cross‐ownership can provide useful suggestions for policy makers on how to improve corporate governance and construct efficient capital markets.
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