Financial Uncertainty Shocks,Production—Financing Network Linkage and Firm Output
Production-financing network linkages prevail among firms in modern economic activities.Global financial uncertainty and Chinese financial uncertainty have been increasing since the 21st century.Although some studies have pointed out that the financial uncertainty shock is an important reason for the decline in firm output,they mainly focus on a single representative firm and fail to reflect the complex network characteristics in the modern economy.As trade credit linkages among firms have direct impacts on their investment and production decisions,production-financing networks may not only share liquidity risks but also provide unique transmission channels for cross-firm diffusions of shocks,becoming an amplifier of financial uncertainty shocks.This paper expands research on the transmission and amplification of external shocks in the economy.Unlike the classic financial accelerator theory,this paper focuses on the repeated transmission and amplification of shocks through complex linkages among firms,emphasizing the role of the production-financing network in exacerbating cyclical fluctuations in the real economy.This paper proposes a multi-sector general equilibrium model by incorporating financial uncertainty shocks into the production-financing network to analyze whether and how the production-financing network,generated by firm-to-firm linkages of intermediate input and trade credit,amplifies the negative impact of financial uncertainty shocks on firm output.This paper then uses the input-output tables provided by the Eora database to test the theoretical predictions.The findings of this paper are as follows.First,the production-financing network significantly amplifies the negative impact of financial uncertainty shocks on firm output,and the impact of network effects is larger than the direct impact of financial uncertainty shocks.Besides,network effects are mainly manifested as downstream network effects.Second,financial uncertainty shocks mainly affect the production factor inputs of firms by influencing financing premiums,trade credit share,and the credit obtained by firms from the banking sector,and ultimately transmit them to firm output.Third,firms characterized by lower upstreamness,lower network out-degree,or higher network in-degree experience more pronounced negative effects.Our findings have several policy implications.First,regulators should prevent the production-financing network from transmitting and amplifying the impact of financial uncertainty shocks.Second,it is necessary to enhance the countercyclical adaptability of monetary policy and macroeconomic prudential policy,and prevent sharp contraction of liquidity for firms and banks.Finally,policies responding to shocks should pay close attention to the impact of shocks on weak firms in the production-financing network,especially those with lower upstreamness,lower network out-degree,or higher network in-degree.
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