Information search costs and trade credit: evidence from high-speed rail connections

Haijie Huang, Steven Xianglong Chen, Edward Lee and Dongdong Li

The European Journal of Finance, 2024, vol. 30, issue 8, 865-888

Abstract: We investigate the impact of information search costs on firms’ access to trade credit used as a major source of interfirm financing. Using the openings of high-speed rails (HSR) in China as exogenous shocks, we find that firms located in cities with HSR connections receive more trade credit from their suppliers. Further analyses show that the HSR effect on trade credit concentrates among customers with poor information transparency and that HSR openings improve the customers’ information environment, suggesting that a decline in information search costs promotes supplier financing. Our finding reveals a positive externality of HSR construction on interfirm financing.

Date: 2024
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DOI: 10.1080/1351847X.2023.2241539

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