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

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.