International Evidence on State Ownership and Trade Credit: Opportunities and Motivations

Recent events, most notably the Global Financial Crisis and the COVID-19 pandemic, have made it increasingly apparent that liquidity is synonymous with corporate survival. In this paper, we explore how governments can fulfill an important need as suppliers of liquidity. Building on the financing advantage view of state ownership, we theorize how state-owned enterprises (SOEs) may provide capital by offering trade credit to customer firms. The data indicate a positive relation between the level of state ownership and the provision of trade credit. Using an institution-focused framework, we further determine that the nation’s institutional environment systematically affects the opportunities and motivations for SOEs to grant trade credit. Specifically, we find that SOEs grant more trade credit in countries with less developed financial markets, weaker legal protection of creditors, less comprehensive information-sharing mechanisms, more collectivist societies, left-wing governments, and higher levels of unemployment. Firm-level factors also influence the credit-granting decisions of SOEs, with SOEs with lower levels of state ownership and higher extents of internationalization offering lower amounts of trade credit. Overall, our study offers novel insights regarding the important role of state-owned firms as providers of liquidity.