COVID-19 Pandemic and Corporate Liquidity: The Role of SOEs' Trade Credit Response.

Although state-owned enterprises are associated with less efficiency and lead to resource misallocation, they may have stabilizing effect in face of a crisis. Exploiting the COVID-19 pandemic as a natural experiment, we study the role of firm ownership in trade credit provision and find robust evidence that SOEs increase their trade credit to downstream firms more than non-SOEs after the outbreak of the pandemic. Moreover, we explore the underlying mechanism and find that better financing ability and multitask of the SOEs contribute to greater trade credit during the pandemic, and the latter plays a more active role. Further analyses show that SOEs' advantage in trade credit extension is more pronounced in industries with higher external financial dependence and provinces with a higher level of government involvement, suggesting that SOEs might have greater comparative advantage in screening due to its involvements in local economy during crisis periods. Our paper provides new insights into the real effects of SOEs on the economy.