This study examines the impact of climate-transition risks on trade credits for Chinese listed companies from 2007-2017. We develop an index of county-level climate-transition risks faced by Chinese-listed companies using data on local carbon emissions and carbon sequestration when moving towards net zero carbon emissions. Our two-way fixed effects OLS regression results find that local firms facing greater climate-transition risks significantly reduce their trade credit financing. Specifically, a one standard deviation of increase in Risk leads to a 0.73% decrease in trade credit. This reduction is more pronounced for state-owned enterprises (SOEs), firms operating in less competitive industries, and those headquartered in regions without carbon trading markets. Our main finding is robust to a battery of sensitivity tests including the use of alternative measures and lagged independent variables. Results on an Instrumental Variable (IV) method and a differences-in-difference (DiD) analysis suggest a causal relationship between climate-transition risks on trade credit. Further analyses reveal two plausible channels for the effect: increased financial distress risk and enhanced access to bank credit.

This paper exploits China’s first default of state-owned enterprises to study the implicit government guarantee’s effect on SOEs’ trade credit financing. It finds that SOEs increase trade credit by 2.3% of total liabilities, on average, relative to non-SOEs after the first SOE default in China’s bond markets in 2015. The additional reliance on suppliers’ credit is more prominent among SOEs with higher information opacity. It is consistent with the literature where trade credit advantage lies in the suppliers’ superior information, as they can observe their clients through daily transactions. The current paper also finds that trade credits positively affect SOEs when IGG weakens. Overall, the results suggest that the reduction in IGG significantly affects Chinese firms’ financing decisions, highlighting the trade credit advantage against the backdrop of imperfect market institutions.

The paper studies the effect of social capital on the firms’ debt capacity and capital structure in China. We measure the social capital of China’s 31 provinces through four indexes: the number of NGOs per capita, the index of trust among peoples, the volunteer blood donation ratio of civics, and the money and material donation of civics. The results show that in those areas with more social capital, the firms are more likely to have higher debt ratio and longer debt maturity, and the firms can get debt financing with less tangible assets. And in those districts, the firms are easier to obtain bank credits and trade credits. The paper has two contributions to the economics literature: first, it confirms the economic value of social capital from a micro view; second, it provides a new perspective to understand the firms’ capital structure choice.