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.

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Full-text Version

Publisher’s Version

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