Title
Trust and the provision of trade credit
Document Type
Journal article
Source Publication
Journal of Banking and Finance
Publication Date
2-1-2014
Volume
39
First Page
146
Last Page
159
Keywords
Social trust, Legal development, Trade credit, China
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.
DOI
10.1016/j.jbankfin.2013.11.019
Print ISSN
03784266
E-ISSN
18726372
Publisher Statement
Copyright © 2013 Elsevier B.V.
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Wu, W., Firth, M., & Rui, O. M. (2014). Trust and the provision of trade credit. Journal of Banking & Finance, 39, 146-159. doi: 10.1016/j.jbankfin.2013.11.019
