Social credit environment and corporate trade credit financing: Evidence from China

We examine the impact of an improved social credit environment on corporate trade credit financing on the basis of microlevel data obtained from Chinese listed companies and a difference-in-differences model. Our findings reveal that enhancing trust and the credit environment promotes corporate trade credit access. We identify two plausible channels and reveal that the pilot policy not only mitigates corporate agency costs but also improves corporate disclosure, thereby enabling firms to secure more trade credit; moreover, these mechanisms are stronger among nonstate-owned enterprises and firms with weaker profitability. The cross-sectional results indicate that the positive effects of the social credit environment on corporate trade credit financing exhibit significant asymmetric outcomes across different regions, industry types, and firm characteristics. Our study highlights the importance of a trustworthy culture and credit environment for informal financing in emerging markets, thereby enriching the literature on the external institutional factors influencing corporate finance.