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The inter-enterprise relationship

and trade credit

Inter-enterprise
relationship

Xueliang Han
Management School, Jinan University, Guangzhou, China and
China Life Insurance Co., Henan, China

Xiao Wang
Management School, Jinan University, Guangzhou, China, and

49
Received 19 June 2012
Revised 10 September 2012
Accepted 30 October 2012

Huijie Wang
Politics and Management Technology College, Henan Normal University,
Henan, China
Abstract
Purpose As the information asymmetry and credit rationing are existing, SMEs are finding it
difficult to gain bank credit. Trade credit, as a one off substitution, gives another access to SME
finance. The purpose of this paper is to examine the effects between inter-corporate relationships
(including the direct-relationship and indirect-relationship) and trade credit.
Design/methodology/approach Following the mainstream of qualitative and quantitative
research, this paper examines the relationship between SMEs and their analysis of the commercial
credit financing. In the empirical research, through text-analysis to build the variable of the number
of unions that enterprises take part in. First, find the relate union through baidu and googel by the
keywords of enterprises name and the Union; then two persons select and determine which the
enterprise may take part in and calculate the number. For that which cannot make sure, ask the third
person. Learning from the HHI-index, the paper calculates according to the amount and times of the
enterprise related transactions to build the variable of the concentration of enterprises related
transactions. Based on three years panel data (from 2007 to 2009) of 196 small and medium listed
companies, this paper establishes the empirical models and examines the effects between
inter-corporate relationship and trade credit through the random effect model.
Findings The paper finds that: SMEs must pay attention to inter-enterprise relationship
management. Without the power and status owned by large enterprises, SMEs have to learn how to
survive in the complex and changing environment. The managers of SMEs have to develop their skills to
manage the inter-enterprise relationship. It finds the effects between inter-enterprise relationship and
trade credit seem like a U shape. SMEs should take part in associations wittingly and establish the
relationship with the others, as all economic activities are embedded in the social network. This research
shows that participating in the business associations, especially provincial associations, has a positive
impact to gain trade credit.
Originality/value This paper breaks through the traditional SMEs financing theories. In this
paper, the individual level theories have been extended to the organizational level. This paper also
expands the study of the social capital theory and gives a more tolerable empirical test.
Keywords Inter-enterprise relationship, Trade credit, Association participating, Reputation assets,
Random model, Small to medium-sized enterprises, Customer relationship management
Paper type Research paper

Introduction
Trade credit plays an important role in financing. Studies have shown that: in the USA,
the trade credit proportion in enterprise total assets is 17.8 percent; in Germany, France

Nankai Business Review

International
Vol. 4 No. 1, 2013
pp. 49-65
q Emerald Group Publishing Limited
2040-8749
DOI 10.1108/20408741311303878

NBRI
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50

and Italy in Europe, the proportion is more than 25 percent (Rajan and Zingales, 1995).
In China, the enterprises which cannot get loans from banks are more dependent on
trade credit (Ge and Qiu, 2007; Cull et al., 2009). Uzzi (1999) argues that, if the
relationship between the enterprise and bank is embedded in the social network, it will
be useful for enterprise getting loans from the bank. In our view, it is same in trade
credit. Fabbri and Klapper (2009) argue that, if the enterprise can get trade credit from
its supplier, it will be willing to offer the trade credit to his customers.
Scholars have studied the trade credit both from a macro perspective and micro
perspective. Under the macro perspective, scholars have studied the relationship
between the trade credit and monetary policy, the trade credit and substance economic,
the trade credit and the stability of financial system, etc. Under the micro perspective,
scholars have focused their studies on the motive of trade credit and its determinants,
like reducing the transaction costs, pricing, promoting, quality assurance, tax
avoidance, etc. In this paper, we study the trade credit under the micro perspective.
We focus on the relationship between enterprises. We want to know which kind of
relationship does work on trade credit.
1. Theoretical analysis and research hypothesis
1.1 The motive of SME is taking trade credit
Trade credit was first proposed by Meltzer in 1960. Then Schwartz (1974) did more
research based on this. Meltzer argues that as the banks know little about the SMEs,
during the period of monetary tightening, the SMEs can hardly get loans from the
banks; however, the large enterprises can still get loans from banks, it allows the large
enterprises to provide trade credit to SMEs. So, there is a dilution effect between trade
credit and monetary policy. Meltzers research lays the foundation to the theory of
credit ration. Schwartz argues that the relationship between trade credit and getting
loans from the bank is substitution, and proposes the theory of comparative advantage
of trade credit. All following studies of trade credit are based on the two theories. Our
study will start from the two theories too.
1.1.1 The theory of credit rationing. After the problem of credit rationing being put
forward by Meltzer (1960) and Stiglitz and Weiss (1981) the information asymmetry
between banks and enterprises. They argue that the existence of information
asymmetry can cause the problem of adverse selection and moral hazard. In other words,
some enterprises cannot get loans from banks even in the competitive equilibrium, no
matter how much they want to pay. Since the credit rationing exists, the small
enterprises have to find the other sources of financing. Under this situation, even if the
trade credit cost is high, they still take it as a substitution. Biais and Golliers (1997)
explanation is clearer. They think that the suppliers have private information about the
buyers, like the operating and credit, etc. This private information can be hardly
retrieved by banks. Ngetal (1999) finds that duration and discounts of trade credit is a
good way to solve the problem of product quality and information asymmetry, etc.
There are two channels allowing information to affect the duration and discounts of
trade credit. First, reputation lacking sellers can extend the pay-time to ensure the
quality; second, the use of duration and discounts can reflect the buyers credit, the
sellers can judge from it and provide different trade credit. Petersen and Rajan (1997)
investigates 3,404 small enterprises in America. The investigation shows that the
enterprises who can easy get loans from banks will like to provide trade credit to the

small enterprises. The new investigations provided by Danielson and Scott (2000) in
America and Atanasova and Wilson (2004) in England confirm the previous statement:
when facing the credit rationing by the banks, the small enterprises will be more
dependent on trade credit. Tsuruta (2003) argues that if the enterprise only gets loans
from one bank, the existing of trade credit will lower the lending cost. He finds that, in
Japan, when the rate of lending from the bank is high, the enterprises will use more trade
credit. In China, enterprises who cannot get enough loans from the bank will be more
dependent on trade credit. In other words, trade credit is a substitution of bank-lending.
Studies from Ge and Qiu (2007) and Cull et al. (2009) have proved it. The study provided
by Shi Xiaojun and Zhang Shunming (2010) shows that trade credit can improve the
scale efficiency through easing financing constraints and optimizing resource allocation.
The theory of credit rationing focuses on information asymmetry and the role of
substitution. It does not discuss the cost of trade credit. The next theory, comparative
advantage, makes up this deficiency.
1.1.2 The theory of comparative advantage. Compared with the theory of credit
rationing, the theory of comparative advantage provides another explanation about
the motive of using trade credit, especially on the cost of trade credit. Although some
scholars argue that trade credit is more expensive than lending from banks, Summers
and Wilson (2002) investigate 655 enterprises in England and find that most enterprises
consider trade credit as one of a cheap way to get finance. There is a paradox between
comparative advantage theory and some empirical research. However, this paradox
is just a superficial view. We should divide the process of trade credit into two stages.
The scholars who hold to the view that trade credit cost much just see the second stage
and neglect the first stage. In the first stage of trade credit, the cost is 0. Their calculation
is wrong. We must take the whole cost into consideration. Such as, Ferris (1981)
argues why lending from suppliers rather than banks is that to reduce the transaction
costs. There is an advantage in completing the transactions and minimizing the costs.
There are some other advantages: private information (Liu Bin, 2008), loan interest
(Simona et al., 2006). Petersen and Rajan (1997) present three advantages of using trade
credit: information hunting, clients control and property retrieving.
1.1.3 A new perspective. Williamson (1999) argues that the transaction is the basis
in analysis and different transactions have a different nature. He proposes three
dimensions to distinguish transactions of life: asset specificity, transaction frequency
and uncertainty. We can see that all the three dimensions are economic dimensions.
However, excepting the economic dimensions, there are still social dimensions.
The performance of one transaction is affected by both economic dimensions and
social dimensions (Stern, 1982). What is more, Williamson has neglected the trust in a
transaction, and none of the transactions can take place without trust (Granovetter,
1985). The theory proposed by Williamson cannot explain the real transaction in life,
at least in explaining Chinese transactions. Luo and Ye (2007) examines the reality of our
enterprises economic behavior and finds an interesting fact: all Chinese businessmen
are doing two things at the same time, playing trust-game and power-game.
In another word, eating and drinking together is in order to obtain affection, at the
same time they are busy monitoring the other action in order to develop a counter
strategy. Based on theories of TCE (Williamson) and embeddedness (Granovetter)
and combined with Chinese culture, Luo Jar-Der advances the TCE-Embeddedness
Analysis Frame.

Inter-enterprise
relationship

51

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52

As we know, if one enterprise depends on the other enterprises or other enterprises

resources, there will arise a relationship. So, we get help from resources dependence theory
to help us understand the over frame. In view of resources dependence theory, the key
point of enterprise survival is the ability of getting and preserving the resources in need.
However, no enterprise can control the whole resources at the same time, it must be
embedded in the environment posed by itself and other enterprises. In other words, the
enterprise depends on the other enterprises. So, the relationship among enterprises can be
described as dependence-relationship. Enterprises also link with the surrounding
environment, through alliance, association, competition and norms, laws, etc. There are
two dimensions which determine the dependence:
(1) enterprise control of resources; and
(2) the importance of resources for enterprise.
This view was put forward by Pfeffer and Salancik in 1978. Based on this, Casciaro and
Piskorski (2005) study the role of the inequality and mutual dependence in enterprises
power reconstruction; Gulati and Sytch (2007) investigate the American automotive
industry and analyze the enterprise interdependence affecting performance. In China,
some scholars have used this theory to study the supply chain alliance, like Wang Yuan
(2006); and some scholars have used this theory to study cooperative performance
issues, like Zheng Jingjing and Deng Mingrong (2009). In the financing area, An Jie and
Ma Chunai (2010) investigate the dependent relationship change and financing options
of private enterprises. They argue that as long as private enterprises growing, the
option of financing shift from enterprise owners relationship to market-oriented model.
We can come to understand this trend in this way: relationship is a resource of
enterprise; depending on enterprise owners means the enterprises can get financing
through the personal-tie, this tie is always a strong tie said by Granovetter; depending
on market means the enterprises can get financing through the market-tie, which is
always a weak tie said by Granovetter or like a structure hole proposed by Burt.
1.2 Theoretical assumptions
We consider the inter-enterprise relationship as a resource owned by enterprises.
This resource can reduce the cost of asset specificity and the cost of obtaining other
resources. As to trade credit, inter-enterprise relationship can avoid the credit rationing,
bring a comparative advantage and improve credit availability. In this paper, we divide
the inter-enterprise relationship into two kinds: direct-relationship and
indirect-relationship. The direct-relationship is formed through the transactions in
the market, including strong tie and weak tie. The indirect-relationship if formed by
taking part in the associations. The letter is a loose relationship. So, we consider it as a
weak tie. Our theoretical assumptions are as shown in Figures 1 and 2. And we assume:
H1. The strong tie of inter-enterprise can help enterprise get trade credit.
H2. The weak tie of inter-enterprise can help enterprise get trade credit.
2. Empirical research
2.1 Reseach design
2.1.1 From theory hypothesis to work hypothesis. As can be seen from the existing
literatures, there is no matter studying on getting trade credit or studying on providing

market

strong-tie

wak-tie/structurehole

enterpriserelationship

nonemarket:
association

emotionalembeddedness

indirect

trade-credit (transaction)
behavior

none-emotionalembeddedness

direct

Inter-enterprise
relationship

weak-tie/structurehole

Figure 1.
The theoretical
assumptions

Note: "" means dependent

strong-tie

enterprise
relationship

53

H1: +

trade credit availability

weak-tie

H2: +

trade credit (Xu Xiaoping and Li Meng, 2009), there is no matter studying the amount
of the trade credit (Xu Xiaoping and Li Meng, 2009; Niskanen and Niskanen, 2006), or
studying on the structure of trade credit (Fisman and Love, 2003; Ge and Qiu, 2007), the
control variables are as follows:
.
Enterprises age. When studying the trade credit, most scholars take this as
control variable. They think this variable does have effect on trade credit,
like Petersen and Rajan (1997), Niskanen and Niskanen (2006), Fisman and
Love (2003), Fisman and Raturi (2004), Ge and Qiu (2007), Alphonse et al. (2006)
and Xu Xiaoping and Li Meng (2009). Pittman and Fortin (2004) used to argue that
the enterprise will accumulate a good credit record as long as time going, it will
reduce the credit cost. However, this trend may be opposite. We must consider the
two sides. When doing the research, we must consider the two opposite trends.
.
Enterprise size. Different scholars use different ways to measure this variable.
Some scholars like to take the number of employees as the size variable,
for example: Uzzi and Gillespie (2002) and Niskanen and Niskanen (2006).

Figure 2.
The theoretical
assumptions

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.

54

Some scholars like to take enterprise assets as the size variable, for example:
Alphonse et al. (2006). Some scholars take both, like Ge and Qiu (2007).
Industry. Different industries have different characteristics, like industry
development and industry policy. These can affect the trade credit. Most scholars
have considered this, like Petersen and Rajan (1997), Uzzi and Gillespie (2002),
Niskanen and Niskanen (2003) and Ogawa and Sterken (2009).
Region. Park and Luo (2001) have investigated 400 enterprises in Shanghai and
Jiangsu province. They argue that if the enterprises located in disadvantaged
regions it will tend to establish the relationship with each other and government.
The other scholars, like Uzzi and Gillespie (2002), Niskanen and Niskanen (2006)
and Fisman and Raturi (2004), all take this as control variable when doing the
studies.
Owner. Studies from Alphonse et al. (2006) and Ge and Qiu (2007) show that the
ownership of enterprises can affect the trade credit betting.

All of above variables are control variables, the determinants of trade credit focus on
the next factors:
(1) Inter-enterprise relationship. When studying the relationship between the
enterprise debt financing and bank-enterprise relations, Uzzi and Gillespie
(2002) consider the effect of the suppliers on enterprise finance. Based on this,
Fisman and Raturi (2004) study the effect of the suppliers on trade credit.
In their study, they consider the relationship in two ways:
.
How long have they known with each other?
.
How often do they communicates with each other?
In our view, related transactions between the enterprises are a direct response to
inter-enterprise relationship. We constructed an indicator named the concentration of
related party transactions. This indicator considers both the money of related-party
transactions and the times of related-party transactions. And we assume that:
H1. The relationship between the concentration of related-party transactions and
the enterprise trade credit like the letter of U.
This is because:
First of all, strong ties usually can form a close connection through the range of the
connection is narrow and the node related is limited, and can bring some advantageous
positions. However, the social unwound net caused by a weak tie usually can speak
louder on the aspect of participator and information content attacked them (Granovetter
and Swedberg, 1992; Burt, 1997). The relation between enterprises also can be divided
into strong and weak ties. If there is a high concentration ratio of affiliate transaction in
enterprise, it will manifest as strong tie. On the contrary, if there is a low concentration
ratio of affiliate transaction in an enterprise, it will manifest as a weak tie. When both
strong and weak ties can promote the enterprise to get more finance of applying
commercial credit, it will present a U-shaped curve. Second, to the point of self-ability
or values of enterprise: if the enterprises ability is limited or aims to keep a relationship
with a few enterprises right from beginning, there will be a high concentration ratio of
enterprise related-transactions. This has been conducive to helping the enterprise to get

stable trade credit from its partners. However, there is a big problem which is hold-up.
This means it can hardly reach out to more other enterprises. On the contrary, if the
enterprise has a wide range of social network resources or aim to keep a relationship with
lots of enterprises in the beginning, there will be a low concentration ratio of enterprise
related-transactions. The enterprise may still get stable trade credit and does not worry
about being held up. So it will also present a U-shaped curve:
(2) Internal financing capacity. The internal financing capacity is closely related to
enterprise trade credit. If the enterprise can get finance easily from the indoor, it
will not need more trade credit, but if the enterprise cannot get finance from the
indoor, its financing need from outside will be strong. Scholars like Uzzi and
Gillespie (2002), Alphonse et al. (2006), Ogawa and Sterken (2009), Shi et al. (2009)
and Park and Luo (2001), all take this index into their studies. Considering this is
not the focus of our paper. We take this as control variable.
(3) Take part in unions. There is some evidence shows that the unions provide a
good platform for enterprise communication. For example, one investigation
shows that: 66.7 percent enterprises of Guangzhou Packaging and Printing
Industry Association say they have established relationship within the industry
and 38.1 percent enterprises say they have established relationship out of the
industry, what is more, 17.5 percent enterprises of it say they have solved the
financing problem through the association. However, according to our survey in
2010 the effect of the association is limited. It is only a platform rather than a
problem-solving tool. So, we propose the following hypothesis:
H2-1. Taking part in the unions is positively correlated with enterprise trade
credit.
H2-2. Different level union has a different effect on enterprise trade credit.
(4) Reputation/goodwill. Stephen et al. (2006) find that if the enterprise own the
positive reputation, it will get higher on stock revenue. Marti Jyrki Niskanen and
Mervi Niskanen re (1993) find that the reputation is positively correlated with
enterprises financial indicators. Niskanen and Niskanen (2006) argue that under
the bank-dominated financial environment, creditworthiness is useful for getting
trade credit to enterprises. Fisman and Love (2003) think that if the enterprise has
a long history, it will have more reputation assets. This will help the enterprise to
get more trade credit than the younger enterprise. It seems to us that the
communication and transactions can bring reputation to enterprise, but we still
cannot say that the reputation can represent the relationship. So, in our paper,
we see it as control variable.
(5) Macroeconomic factors; when studying trade credit under the macro perspective,
scholars must take the macroeconomic factors into consideration. However,
in some micro perspective studied some scholars also take macroeconomic factors
into their studies. For example, Niskanen and Niskanen (2006) take the GDP and
market interest rates into their model when they study trade credit; Ogawa and
Sterken (2009) argue that the macroeconomic factors affect the enterprise trade
credit. In our study, we consider the macroeconomic factors as control variables.
We think the enterprise locations per GDP can reflect the macro environment,

Inter-enterprise
relationship

55

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56

so we take it as our macroeconomic control variable. What is more, the macro

environment can effect the enterprise trade credit, but it cannot represent the
relationship. In our study, consider it as control variable is appropriate.
2.1.2 Variable design and model building.
Variable design
.
Dependent variable. Our dependent variable is the trade credit. The number is the
enterprise get the other enterprises. The trade credit includes payable (accounts
and notes) and prepayments. In the model, the number equals Log10 (trade credit).
.
Independent variables. Our independent variables include the concentration of
enterprises related transactions (calculate according to the amount and times of
the enterprise related transactions), the number of unions that enterprises take
part in (obtain through text analysis).
.
Control variables. Our control variables include: industry, the size (the number of
the enterprises employees), the age, the concentration of top ten shareholders
holding, the enterprise funding gap, the goodwill and per GDP of enterprise
location (province).
To be more convenient and clearer, we summarize all the variables in Table I.
Based on the work hypothesis and setting variables, we begin to build our models.
For H1, we build our first model:
p a1 i a2 o a3 e a4 a1 a5 a2 a6 r a7 d a8 pg b1 r1 b2 r2 1
where, 1 stochastic error.
For H2-1 and H2-2, we build our second model:
p a1 i a2 o a3 e a4 a1 a5 a2 a6 r a7 d a8 pg b1 r1 b2 r2
lx union 1
where, union represents pu, cu or tu, lx is the coefficient.
2.2 Empirial analysis and empirical results
2.2.1 Sample selection and description. To ensure the stability and representativeness
of the study, we take maximum sample as our sample select standard, and select 201
enterprises from SME plates as our initial sample, including: 153 manufacturing
enterprises, two extractive enterprises, one cultural enterprise, one electricity, water
and coal enterprise, three real estate enterprises, two transportation and warehousing
enterprises, one bank, four farm, forestry, animal husbandry and fisheries enterprises,
three whole sale and retailing enterprises, nine social severities enterprises, 16 IT
enterprises and one conglomerate enterprise. Next, we remove the bank enterprise from
our initial sample. But we still find that there are four enterprises whose stocks are
abnormal. We remove the four enterprises too. In our final sample, there are 196 SMEs,
including 151 industrial enterprises and 45 none-industrial enterprises.
2.2.2 The basic information about the sample. In this part, we describe the basic
information about the sample, including the size, the age, the concentration of top ten
shareholders holding, the enterprise funding gap, the goodwill and the per GDP of
enterprise location (province). The details have been shown in Table II.

Industry enterprise, yes 1, no 0

Calculate according to enterpise
accounting report
Calculate according to GENIUS
FINANCE
The enterpise accounting report year
subtract the founded year

Calculate according to enterpise

accounting report

www.stats.
gov.cn/

Log10 ( )

Cu
Baidu.com
and
google.con
Baidu.com
and
google.con
Baidu.com
and
google.con

tu

pu

r2

r1

pg

a2
d
r

CSMAR

CSMAR

CSMAR
CSMAR

GENIUS
FINANCE
GENIUS
FINANCE

a1

i
o

Representation

CSMAR
CSMAR

CSMAR

From

Calculate according to Myers (1998)

Log10 ( )

The enterpise accounting report year

subtract the founded year

Industry enterprise, yes 1, no 0

Calculate according to enterpise
accounting report
Log10 ( )

Log10 ( )

The meaning in model

Independent variables
The concentration of enterprises related Calculate according to the amount and Calculate according to the amount and
times of the enterprise related
transactions
times of the enterprise related
transactions, HHI index
transactions, HHI index
The concentration of enterprises related
transactions-square
The number of national level and above First, find the relate union through
unions that enterprises take part in the baidu and googel by the key words
of enterprises name and the union;
number of provincial unions that
then two persons select and determine
enterprises take part in
which are the enterprise may take part
the number of town level and below
in, calculate the number. For that
unions that enterprises take part in
which cannot make sure, ask the third
person

Calculate according to Myers (1998)

Calculate according to enterpise
accounting report
The location of the enterprises per GDP GDP/population

Age-square
The enterprise funding gap
Goodwill

Age

Control variables
Industry
The concentration of top ten
shareholders holding
Size

Dependent variable
Trade credit

The meaning in description

Inter-enterprise
relationship

57

Table I.
Variables summarized

NBRI
4,1

Variable
0
e

58
a1
d
r
pg
Table II.
The basic information
about the sample

Obs.

2007
2008
2009
2007
2008
2009
2007
2008
2009
2007
2008
2009
2007
2008
2009
2007
2008
2009

196
196
196
196
196
196
196
196
196
196
196
196
192
189
192
196
196
196

Mean
0.1895918
0.1889286
0.1808163
2,294.842
2,294.842
2,294.842
6.80102
7.80102
8.80102
3.47 10 07
21.01 10 08
27.60 10 07
1.689095
2.305245
2.389768
31,361.7
35,862.23
38,854.51

SD
0.104694
0.109999
0.109864
2,928.418
2,928.418
2,928.418
3.326074
3.326074
3.326074
3.28 10 08
3.03 10 08
6.30 10 08
2.859313
3.235245
3.272204
13,396.92
14,393.41
15,329.93

Min.
0.02
0.02
0.02
0
0
0
1
2
3
2 2.10 10 09
2 1.50 10 09
2 7.00 10 09
0
0
0
6,915
8,824
10,258

Max.
0.55
0.55
0.55
22,502
22,502
22,502
22
23
24
1.70 10 09
1.30 10 09
2.20 10 09
7.82186
8.39378
8.39378
66,367
73,124
78,225

Notes: The min of e is 0 because the number missing, the min of the other variables are 0 is true; the r
is the number of LN (goodwill)

From Table II we can see that: the concentration of top ten shareholders holding
change is little, during 2007-2009, the number is between 18 and 19 percent; the
enterprise funding gap change great, in 2007, the number is positive, in 2007 and 2009,
the number is negative; the goodwill has changed, but not all enterprises own this term
(192, 2007; 189, 2008; 192, 2009); the per GDP of enterprise location is increasing, but
there is a large gap between the max and min. What is more, all of these are different
when come into the specific industries, which do not show here.
2.3 Variable correlation test and regression results
2.3.1 Variable correlation test. Before we run the model, we use stata11.0 to take the
variable correlation test. The results can be seen from Table III.
From the variable correlation test, we can know that: the highest correlation
coefficient is r and its square, which is 0.986; followed by age and its square, which are
0.962. However, the above is allowed in an econometric model. The correlation
coefficients between the other variables are under 0.3. So, all the selected variables can
be taken into one model. What is more, in this paper we use the random effect model
which has considered the heteroscedasticity, so we will not take heteroscedasticity test.
2.3.2 The results of model regression. In this paper we estimate the established
model of the random effect model by stata11.0, adopting stepwise regression method.
The results have been shown in Table IV. In Table IV, the first column is the result of
the basal model; the second column, we add the variables of r and r 2, which represents
direct-relationship (the concentration of business related-party transactions); the third
and fourth column, we add the variables of unions, which represents indirectrelationship (the enterprises participate in association). Correspondingly, robust test
results are attached.

p
i
o
e
d
a1
a2
r
pg
r1
r2
cu
pu
tu

20.0363
1
20.0849
0.2214
0.0638
20.088
20.0672
20.2535
0.0186
20.1204
20.1171
20.043
0.0174
20.0066

1
0.0333
0.1391
0.2535
0.0853
0.0078
2 0.0443
2 0.0139
0.084
2 0.1894
2 0.1839
0.0525
0.0474
0.0126

0.1438
2 0.1366
1
2 0.0201
0.1123
2 0.1906
2 0.153
2 0.1832
0.0372
2 0.0632
2 0.077
0.0885
0.0533
0.0941

o
0.2831
0.2
0.0817
1
0.1011
20.1293
20.1663
0.0361
20.0816
20.1742
20.1698
20.0235
0.0786
0.0406

e
2 0.0946
0.1318
0.061
0.0496
1
0.1155
0.0983
0.003
2 0.0188
0.0002
0.0045
2 0.0158
2 0.0305
0.104

d
20.0079
20.0318
20.1281
20.178
0.0504
1
0.9521
0.1005
0.0141
0.2781
0.3102
20.0601
20.0532
20.0374

a1
2 0.0497
2 0.0201
2 0.1328
2 0.2236
0.0496
0.9584
1
0.0918
2 0.0132
0.3075
0.3359
2 0.0315
2 0.0389
2 0.0371

a2
0.0163
20.1353
20.1836
0.1007
0.0238
0.0345
0.0201
1
0.1273
20.0481
20.0345
0.078
20.0099
20.0173

r
0.0937
20.1071
20.0057
20.0264
20.057
0.0267
20.0015
0.1453
1
20.0107
20.0175
0.0002
0.0284
0.022

pg
2 0.0533
2 0.0001
2 0.0568
2 0.0214
2 0.053
0.0738
0.0814
2 0.0655
2 0.0645
1
0.9861
2 0.0415
2 0.0626
0.0013

r1
0.0176
0.0346
20.0054
0.056
20.0292
20.0213
20.019
20.0527
20.0777
0.9302
1
20.0455
20.0657
20.0021

r2
0.0308
2 0.024
0.0717
0.0304
0.0101
2 0.0476
2 0.0257
0.0481
0.0431
2 0.0928
2 0.0639
1
0.1358
0.0607

cu

tu
2 0.0025
2 0.0086
0.0352
0.0257
0.0664
0.0394
0.037
0.0204
0.0364
2 0.0279
2 0.0246
0.1394
0.1187
1

pu
20.0098
0.0169
0.065
0.0143
20.009
20.0334
20.0264
20.0241
0.006
20.0418
20.0242
0.1676
1
0.192

Inter-enterprise
relationship

59

Table III.
The result of the variable
correlation test

Table IV.
The results of random
effect model test (I)

3.622 * * *
(20.735)
0.2407
0.0869
0.0975
560
189
348.35
0.00

4.150 * * *
(2 0.779)
0.2406
0.1263
0.139
536
181
324.88
0.00

0.0227
(2 1.194)
2 0.366
(2 0.945)
0.00949
(2 0.00735)
0.016
(2 0.012)
0.00287
2 0.015
3.476 * * *
(2 1.075)
0.2771
0.0854
0.101
328
113
173.95
0.00

2 0.473 * * *
(2 0.169)
0.0517 * * *
(2 0.0189)

4.198 * * *
(20.814)
0.2622
0.1342
0.1308
431
180
210.23
0.00

0.0202 *
(20.0117)

20.487 * * *
(20.172)
0.0535 * * *
(20.0192)

m32
p

3.622 * * *
(20.815)
0.2407
0.0869
0.0975
560
189
348.35
0.00

m1
p

Notes: Significant at: *p , 0.1, * *p , 0.05 and * * *p , 0.01; standard errors in parentheses

R 2: Within
Between
Overall
Obs.
No. of stkcd
LM test: x 2
Prob . x 2

Constant

tu

pu

cu

r2

r1

m31
p

Re
m2
p

4.150 * * *
(20.87)
0.2406
0.1263
0.139
536
181
324.88
0.00

m31
p
0.0227
(2 1.129)
2 0.366
(2 0.92)
0.00949
(2 0.00616)
0.0160 * *
(2 0.00747)
0.00287
2 0.0199
3.476 * * *
(2 1.142)
0.2771
0.0854
0.101
328
113
173.95
0.00

Re-robust

20.473 * * *
(20.174)
0.0517 * * *
(20.0178)

m2
p

60

Variables

m1
p

4.198 * * *
(2 0.877)
0.2622
0.1342
0.1308
431
180
210.23
0.00

0.0202 * *
(2 0.00794)

2 0.487 * * *
(2 0.178)
0.0535 * * *
(2 0.0183)

m32
p

NBRI
4,1

As can be seen from the model estimation results:

In the second column and the fourth column of the regular estimate
results, corresponding opposite in the robust estimate results, the coefficients of r
(the concentration of business related-party transactions) are all negative: 2 0.473,
20.487,2 0.473,2 0.487, but significant in 1 percent level. What is more, the coefficients of
r 2 are positive: 0.0517, 0.0535, 0.0517, 0.0535, significant at the 1 percent level. If we draw
the relationship between r and p in the picture, it looks like the letter U. So, we can claim
that our H1 has been verified. In other words, like getting loans from the bank, there are
two credit modes in the trade credit, which is transactional credit mode and relational
credit mode. In our model, r is high, it means the enterprise associates with few
enterprises; r is low, it means the enterprise associates with many enterprises. In both
cases, the enterprise can get trade credit.
In the third column of the regular estimate results, the coefficients of cu, pu and tu
are: 00949, 0.016, 0.00287, but are not significant. So, we cannot make sure that the
different association has different effects on enterprise trade credit. But when we
remove the cu and tu, we find that the pu is significant at the 10 percent level. When we
take the robust estimate, we find that, no matter the cu or tu is in the model, the pu is
always significant at the 5 percent level. The coefficients are: 0.0160 (when cu and tu
are in the model), 0.0202 (when cu and tu are not in the model). Now, we can say that
different association has different effects on enterprise trade credit. So, we claim that,
our H2-1 has been verified, but we still cannot make sure on our H2-2.
The results of the Breusch-Pagan test let us failed to reject the null and conclude
that random effects are not appropriate. No evidence of significant differences across
countries, therefore you can run a simple OLS regression.
2.3.3 The further estimate. From the last part, we can see that when union variables
were taken into consideration of the r and r 2 both became none significant. We should
test that if there is interaction between the direct-relationship (r) and
indirect-relationship (unions). So, we consider the new variable r *union into our
model. The new model is as follows:
p a1 i a2 o a3 e a4 a1 a5 a2 a6 r a7 d a8 pg b1 r1 b2 r2
lx union hy r1* union 1
We estimate the new model by stata11.0. The results can be seen from Table V.
As can be seen from the new model estimation results:
When enterprises take part in provincial union the effect is positive; when
enterprises take part in both provincial and low level unions, the effect is negative,
as can be seen from the coefficients. However, they are not significant in statistics.
Only, when enterprises take part in all the levels of the unions, the effect is significant,
and the coefficient is 2 0.0626.
3. Conclusion
All economic activities are embedded in a social network. SMEs should take part
in associations wittingly and establish a relationship with the others. Our
research shows that participating in the business associations, especially provincial
associations, has a positive impact to gain trade credit. At the same time, SMEs should
keep independence and take action impacting on the surrounding environment, to
avoid being held up.

Inter-enterprise
relationship

61

Table V.
The results of random
effect model test (II )

4.194***
(20.814)
0.2624
0.1348
0.1308
431
180
209.87
0

20.487***
(20.172)
0.0539***
(20.0192)
0.0205 *
(20.0117)
0.00884
(20.0188)

4.173***
(20.815)
0.2652
0.133
0.1308
431
180
208.12
0

20.0237
(20.0321)

20.487***
(20.172)
0.0525***
(20.0193)
0.0194 *
(20.0117)

Re
p

(20.0337)
3.572***
(21.064)
0.2784
0.0907
0.1072
328
113
170.7
0

20.0626*

0.0393
(21.178)
20.382
(20.933)
0.0156
(20.0118)

4.194***
(2 0.878)
0.2624
0.1348
0.1308
431
180
209.87
0

2 0.487***
(2 0.178)
0.0539***
(2 0.0183)
0.0205***
(2 0.00793)
0.00884
(2 0.0104)

4.173***
(2 0.886)
0.2652
0.133
0.1308
431
180
208.12
0

2 0.0237
(2 0.039)

2 0.487***
(2 0.179)
0.0525***
(2 0.0185)
0.0194 **
(2 0.00817)

Re-robust
p

2 0.0626
(2 0.0396)
3.572***
(2 1.132)
0.2784
0.0907
0.1072
328
113
170.7
0

0.0393
(2 1.123)
2 0.382
(2 0.914)
0.0156 **
(2 0.00796)

4.817***
(20.645)
0.2072
0.3594
0.3258
339
140
131.88
0

20.378***
(20.127)
0.0412***
(20.0139)
0.0111
(20.0124)
0.00673
(20.0192)

4.789***
(20.645)
0.2073
0.3614
0.328
339
140
130.78
0

20.0243
(20.0335)

20.377***
(20.126)
0.0397***
(20.0139)
0.00954
(20.0125)

Industry
p

(20.0363)
4.365***
(20.836)
0.2358
0.2846
0.2926
260
89
117.02
0

20.0645 *

20.193
(20.861)
20.121
(20.685)
0.00581
(20.0123)

2.623
(2 2.608)
0.5638
0.0448
0.0783
92
40
43.33
0

0.135
(2 3.227)
2 0.713
(2 2.563)
0.0901***
(2 0.0286)
2 0.0365
(2 0.0818)

2.985
(2 2.592)
0.5874
0.0444
0.0794
92
40
43.51
0

2 0.150 *
(2 0.0895)

0.157
(2 3.211)
2 0.733
(2 2.55)
0.0937***
(2 0.0277)

None industry
p

2 0.0825
(2 0.0754)
1.454
(2 3.836)
0.5676
0.0123
0.0462
68
24
33.44
0

1.969
(2 4.994)
2 2.438
(2 3.915)
0.0946***
(2 0.0313)

Notes: Significant at: *p , 0.1, **p , 0.05 and ***p , 0.01; standard errors in parentheses; rp represents the r*provincial-union, rpc represents the r*national and provincial-union, r*ptc represents r*
all-union

Within
Between
Overall
Obs.
No.
LM: x 2
prob . x 2

Constant

rptc

rpt

rp

pu

r2

r1

62

VAR

NBRI
4,1

SMEs must pay attention to inter-enterprise relationship management. Without the

power and status owned by large enterprises, SMEs have to learn how to survive in
the changing and complex environment. The managers of SMEs have to develop their
skills to manage the inter-enterprise relationship. It not only brings enterprises the
benefits of financing, but also the benefits of producing and selling, etc.

Inter-enterprise
relationship

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About the authors
Xueliang Han (1986-) is a Graduate Student at Jinan University, working in China Life Insurance
Co., Ltd Henan (Xinxiang) Branch. Xueliang Han is the corresponding author and can be
contacted at: [email protected]
Xiao Wang (1969-) is Professor at Jinan University. Research interests include: SMEs
financing, etc.
Huijie Wang (1986-) is a Graduate Student in Henan Normal University.

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Inter-enterprise
relationship

65