Trust and the provision of trade credit

Wenfeng Wu, Michael Firth and Oliver Rui

Journal of Banking & Finance, 2014, vol. 39, issue C, 146-159

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.

Keywords: Social trust; Legal development; Trade credit; China (search for similar items in EconPapers)
JEL-codes: G32 O16 Z13 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (174)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:39:y:2014:i:c:p:146-159

DOI: 10.1016/j.jbankfin.2013.11.019

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