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Confucian Culture and Trade Credit: Evidence from Chinese Listed Companies

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  • Li, Wanli
  • Xu, Xixiong
  • Long, Zhineng

Abstract

This paper examines the effect of cultural factors on the use of trade credit, an important non-formal financial channel. Using a sample of Chinese listed companies from 2007–2017, we find that firms headquartered in regions with a stronger Confucianism atmosphere can obtain more trade credit than their peers elsewhere. Further, the positive association between Confucianism and trade credit is more prominent for non-state-owned enterprises and firms located in regions with underdeveloped financial markets. Overall, our results highlight that Confucian culture—as an implicit value norm and an ethical philosophy—plays an important positive role in fostering honesty, and thus, promoting the use of trade credit. It enriches the literature on the determinants of trade credit and provides insights on the impact of Confucianism on corporate behavior and its underlying mechanism.

Suggested Citation

  • Li, Wanli & Xu, Xixiong & Long, Zhineng, 2020. "Confucian Culture and Trade Credit: Evidence from Chinese Listed Companies," Research in International Business and Finance, Elsevier, vol. 53(C).
    • Handle: RePEc:eee:riibaf:v:53:y:2020:i:c:s0275531919309316
    DOI: 10.1016/j.ribaf.2020.101232
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    More about this item

    Keywords

    Confucianism; Trade credit; Informal finance;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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