Abstract: Based on the cases of A-share listed companies from 2003 to 2012 in Shanghai and Shenzhen, this empirical Study studied the impacts of trade credit on inefficient investment. The major findings in this study include: Overinvestment behavior of listed companies is mainly because that agency conflict is more serious and the companies raise a lot of free cash flow; and underinvestment is primarily due to financing constraints, rather than the agency conflict between shareholders and creditors; Listed companies’ trade credit in general can inhabit overinvestment and give play to the role of governance. Meantime, trade credit can alleviate underinvestment in listed companies and plays a role of financing.