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Independent director connectedness in China: An examination of the trade credit financing hypothesis

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  • Xia, Changyuan
  • Zhang, Xiaowei
  • Cao, Chunfang
  • Xu, Nan

Abstract

We propose and examine a trade credit financing hypothesis of independent director connectedness. Our conjecture is that a firm with well-connected independent directors can obtain more trade credit. The findings suggest that independent director connectedness is positively correlated with the amount of trade credit available to a firm. The trade credit obtained is costly, however. Relationship-based financing comes in the form of higher-cost notes payable, rather than lower-cost accounts payable. Specifically, we find that firms with financial constraints are more likely to benefit from independent director connectedness in obtaining trade credit. We show that the roles of independent directors include trade credit financing in addition to traditional monitoring and advising.

Suggested Citation

  • Xia, Changyuan & Zhang, Xiaowei & Cao, Chunfang & Xu, Nan, 2019. "Independent director connectedness in China: An examination of the trade credit financing hypothesis," International Review of Economics & Finance, Elsevier, vol. 63(C), pages 209-225.
  • Handle: RePEc:eee:reveco:v:63:y:2019:i:c:p:209-225
    DOI: 10.1016/j.iref.2018.09.010
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    Cited by:

    1. Li, Xiaoqing & Fung, Anna & Fung, Hung-Gay & Qiao, Penghao, 2020. "Directorate interlocks and corporate cash holdings in emerging economies: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 66(C), pages 244-260.

    More about this item

    Keywords

    Independent director connectedness; Trade credit; Alternative financing;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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