Trade credit financing, social trust, and financial distress: Evidence from Chinese listed companies

Ying Tang, Biliang Wang, Andrea Moro, Jinyu Chen and Maura Sheehan

Research in International Business and Finance, 2025, vol. 79, issue C

Abstract: This research investigates the relationship between trade credit financing and firms’ financial distress using a sample of Chinese listed companies from 2000 to 2020. Our results reveal a significant U-shaped relationship between firms’ trade credit financing and the likelihood of financial distress and that social trust moderates this curvilinear relationship. Our evidence suggests that firm liquidity and financial constraints are two underlying channels through which trade credit financing produces this U-shaped impact on firm bankruptcy risk. Our results are robust to alternative measures of key variables and tests for endogeneity (reverse causality and omitted variables).

Keywords: Trade credit; Financial distress; Social trust; U-shaped relationship (search for similar items in EconPapers)
JEL-codes: D21 G32 G33 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:79:y:2025:i:c:s0275531925003095

DOI: 10.1016/j.ribaf.2025.103053

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