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Geographic proximity and trade credit: Evidence from a quasi-natural experiment

Author

Listed:
  • Ouyang, Caiyue
  • Xiong, Jiacai
  • Liu, Li
  • Yao, Jun

Abstract

This paper examines the impact of geographic proximity on suppliers' decisions to provide trade credit to their customers. To establish a causal relationship, we utilize the implementation of high-speed rail (HSR) services in China as a quasi-natural experiment. Our findings reveal a significant increase in trade credit received by firms after introducing HSR services. We propose and test three mechanisms to elucidate the influence of proximity on trade credit provision: the enhanced convenience for acquiring soft information, heightened competition among suppliers, and the potential development of social trust. Empirical evidence strongly supports the first two mechanisms, underscoring their importance in shaping trade credit decisions. However, limited evidence is found regarding the role of social trust. These findings contribute to understanding the complex interplay between geographic proximity, trade credit, and supplier decision-making processes.

Suggested Citation

  • Ouyang, Caiyue & Xiong, Jiacai & Liu, Li & Yao, Jun, 2024. "Geographic proximity and trade credit: Evidence from a quasi-natural experiment," Journal of Corporate Finance, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:corfin:v:84:y:2024:i:c:s0929119923001840
    DOI: 10.1016/j.jcorpfin.2023.102535
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    More about this item

    Keywords

    Trade credit; Geographic proximity; Soft information; Supplier competition; Social trust; High-speed rail;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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