Reputation is golden: Superstar CEOs and trade credit

Xiaofeng Quan, Cheng Xiang and Ru (Tina) Gao

Journal of Business Finance & Accounting, 2024, vol. 51, issue 1-2, 631-656

Abstract: This study investigates how Chief Executive Officer (CEO) reputation, proxied by receiving prestigious awards, impacts suppliers’ provision of trade credit to a firm. Employing a sample of Chinese public firms, we document that firms managed by award‐winning CEOs receive more trade credit than do propensity score matching matched control firms after the award year. Further analyses suggest that the increased trade credit of firms with reputable CEOs is due to the decreased default risk and information risk associated with those firms. Moreover, the impact of CEOs’ reputations on trade credit varies depending on award rarity, financing needs, CEO characteristics and firm opacity. Overall, our results are consistent with efficient contracting theory and signal theory.

Date: 2024
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https://doi.org/10.1111/jbfa.12735

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