Institutional cross-ownership and trade credit: Evidence from China

Research 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.