The Effect of Trade Finance on the Performance of Chinese Firms

This study investigates the impact of Supply Chain Finance (SCF) adoption on firm performance and explores the underlying mechanisms through the lens of financing constraints. Utilizing a comprehensive dataset of Chinese listed firms following the 2019 accounting policy shift—which mandated the explicit disclosure of Accounts Receivable Financing (ARF)—we employ a series of rigorous empirical models to establish a causal link between SCF and corporate value creation. Our findings reveal that SCF adoption significantly alleviates both operational liquidity pressure (measured by the WW Index) and structural financial friction (measured by the KZ Index). However, the impact is characterized by notable temporal and directional asymmetries: while the relief of operational constraints is immediate, the reduction in structural friction requires a gestation period to fully manifest. Furthermore, we identify a distinct time-lag effect on capital allocation, where the initial liquidity rebalancing caused by SCF leads to a temporary decrease in contemporaneous capital expenditure, followed by a significant positive surge in the subsequent period. Mediation analysis demonstrates that the alleviation of financing constraints is the primary transmission channel through which SCF enhances multi- dimensional firm performance, including Sales Growth, Return on Assets (ROA), and Adjusted Market Returns. To address potential endogeneity concerns, we implement a Two- Stage Least Squares (2SLS) instrumental variable approach, confirming that the performance enhancements are exogenously driven by SCF-induced financial relief. Collectively, this research underscores the role of SCF as a provider of liquidity that empowers enterprises to overcome financial bottlenecks.