Does business strategy influence interfirm financing? Evidence from trade credit

Zhangfan Cao, Steven Xianglong Chen and Edward Lee

Journal of Business Research, 2022, vol. 141, issue C, 495-511

Abstract: This paper investigates the impact of business strategy on firms’ trade credit policies. We find that firms following an innovation-oriented strategy (prospectors) offer significantly more trade credit to their customers than those following an efficiency-oriented strategy (defenders). Furthermore, by exploiting two exogenous shocks to the supplies of high-skill employees and bank credit, we find that prospectors curtail trade credit in response to the reduction of talent mobility following the adoption of Inevitable Disclosure Doctrine, whereas defenders significantly increase provisions of trade credit following the increase in bank credit supply due to the relaxation in interstate branching regulations. Additional evidence substantiates that prospectors increasing trade credit provisions enjoy higher sales generation efficiency and superior performance. Finally, our supply chain analysis documents that prospectors also receive significantly more trade credit from their suppliers. Collectively, our findings highlight that business strategy is an important yet intrinsic determinant of supply chain financing.

Keywords: Business strategy; Trade credit; Supply chain financing; Customer-supplier relationship; Prospector; Defender (search for similar items in EconPapers)
JEL-codes: G30 G32 L10 L14 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:141:y:2022:i:c:p:495-511

DOI: 10.1016/j.jbusres.2021.11.050

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