Employment protection and the provision of trade credit

Tongxia Li, Ang, Tze Chuan ‘Chewie’ and Chun Lu

Journal of Banking & Finance, 2023, vol. 155, issue C

Abstract: Improved employment protection may affect corporate trade credit decisions due to increased labor costs. Using the staggered adoption of U.S. state-level Wrongful Discharge Laws as a quasi-natural experiment, we find that suppliers’ provision of trade credit decreases significantly with better labor protection. The trade credit reduction is more pronounced for firms with higher distress risk, financial constraints, and operating leverage. Firms operating in states with lower unionization and in industries with higher labor turnover, and greater product market competition cut their trade credit more. The decrease in trade credit supply also varies with the type of products sold and customer concentration.

Keywords: Employment protection; Trade credit; Labor adjustment cost; Accounts receivables (search for similar items in EconPapers)
JEL-codes: G30 G32 G38 J63 K31 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:155:y:2023:i:c:s0378426623001899

DOI: 10.1016/j.jbankfin.2023.106991

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