Trust and the Provision of Trade Credit

Wenfeng Wu (First Author), Oliver Meng Rui (Participant Author), Michael Firth (Participant Author)

Research output: Contribution to journalJournal

132 Citations (Web of Science)

Abstract

State-controlled listed firms in China receive preferential treatment when borrowing from commercial banks; in contrast, private controlled firms rely on informal finance and on trade credit. We argue for and find evidence that private firms located in higher social trust regions use more trade credit from suppliers, extend more trade credit to customers, and collect receivables and pay payables more quickly. These findings are enhanced for firms located in provinces with weak protection of property rights. Our results are robust to different measures of social trust, legal environment, and endogeneity. Overall, our results show that social trust helps private firms overcome institutional difficulties in financing their activities.
Original languageEnglish
Pages (from-to)146-159
JournalJournal of Banking & Finance
Volume39
Issue numberFebruary
DOIs
Publication statusPublished - 2014

Corresponding author email

mafirth@ln.edu.hk

Keywords

  • China
  • Legal development
  • Social Trust
  • Trade Credit

Indexed by

  • ABDC-A*
  • Scopus
  • SSCI

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