Does social culture matter for firms' access to trade credit? Evidence from China

Merchant guild culture refers to the codes of ethics abided by all businessmen in a merchant guild. As merchant guild culture is a specific social culture developed by business groups, we argue that it is more likely to affect corporate trade credit when compared to other social culture. Using data from China during 2004–2019, we find that merchant guilds culture significantly increases corporate trade credit. Further analyses reveal that (1) merchant guilds culture promotes financial reporting quality and (2) its positive effect on corporate trade credit is more pronounced for regions with poor general trust. These findings imply that merchant guilds culture attaches great importance to business ethics, urges managers to behave in a moral way and provide transparent information, which, lastly, can mitigate information asymmetry and build relational trust, enhancing firms' access to trade credit. Overall, this study contributes to the literature in the fields of “culture and finance” and the determinants of credit rationing.