Advertisement

Corporate social responsibility and trade credit

  • Hongkang Xu
  • Jia Wu
  • Mai DaoEmail author
Original Research
  • 6 Downloads

Abstract

Prior studies show that higher corporate social responsibility (CSR) performance lowers firms’ cost of debt and equity financing. Using a sample of 16,463 U.S. firm-year observations that represent more than 2455 individual firms over the 1996–2016 period, we investigate the relation between all aspects of CSR and trade credit. We provide strong and robust evidence that higher overall CSR scores are related to a higher level of trade credit. A further examination reveals positive associations between trade credit and the four CSR individual components (i.e., the environment, employee relations, community, and diversity). Taken together, our results highlight the important signaling role that CSR plays in increasing the suppliers’ willingness to extend trade credit. Our study also has an important supply chain implication that emphasizes the role of CSR in designing contracts between buyers and suppliers and the level of trade credit for buyer firms with CSR investments.

Keywords

Corporate social responsibility Trade credit Signaling theory Supply chain 

JEL Classification

D25 G32 M40 

Notes

References

  1. Abdulla Y, Dang VA, Khurshed A (2017) Stock market listing and the use of trade credit: evidence from public and private firms. J Corp Finance 46:391–410CrossRefGoogle Scholar
  2. Agostino M, Trivieri F (2014) Does trade credit play a signaling role? Some evidence from SMEs microdata. Small Bus Econ 42:131–151CrossRefGoogle Scholar
  3. Aktas N, de Bodt E, Lobez F, Statnik J-C (2012) The information content of trade credit. J Bank Finance 36:1402–1413CrossRefGoogle Scholar
  4. Almahrog Y, Aribi Z, Arun T (2018) Earnings management and corporate social responsibility: UK evidence. J Financ Report Acc 16:311–332CrossRefGoogle Scholar
  5. Atanasova C (2007) Access to institutional finance and the use of trade credit. Financ Manag 36(1):49–67CrossRefGoogle Scholar
  6. Atanasova CV, Wilson N (2003) Bank borrowing constraints and the demand for trade credit: evidence from panel data. Managerial Decis Econ 24:503–514CrossRefGoogle Scholar
  7. Axjonow A, Ernstberger J, Pott C (2018) The impact of corporate social responsibility disclosure on corporate reputation: a non-professional stakeholder perspective. J Bus Ethics 151:429–450CrossRefGoogle Scholar
  8. Bae SC, Chang K, Yi H-C (2018) Corporate social responsibility, credit rating, and private debt contracting: new evidence from syndicated loan market. Rev Quant Finance Acc 50:261–299CrossRefGoogle Scholar
  9. Barrot J-N (2016) Trade credit and industry dynamics: evidence from trucking firms. J Finance 71:1975–2015CrossRefGoogle Scholar
  10. Beatty A, Weber J, Yu JJ (2008) Conservatism and debt. J Account Econ 45:154–174CrossRefGoogle Scholar
  11. Benlemlih M (2017) Corporate social responsibility and firm debt maturity. J Bus Ethics 144:491–517CrossRefGoogle Scholar
  12. Benlemlih M, Bitar M (2018) Corporate social responsibility and investment efficiency. J Bus Ethics 148:647–671CrossRefGoogle Scholar
  13. Bhandari A, Javakhadze D (2017) Corporate social responsibility and capital allocation efficiency. J Corp Finance 43:354–377CrossRefGoogle Scholar
  14. Bouslah K, Kryzanowski L, M’Zali B (2013) The impact of the dimensions of social performance on firm risk. J Bank Finance 37:1258–1273CrossRefGoogle Scholar
  15. Breuer W, Muller T, Rosenbach D, Salzmann A (2018) Corporate social responsibility, investor protection, and cost of equity: a cross-country comparison. J Bank Finance 96:34–55CrossRefGoogle Scholar
  16. Byun SK, Oh J-M (2018) Local corporate social responsibility, media coverage, and shareholder value. J Bank Finance 87:68–86CrossRefGoogle Scholar
  17. Cao F, Ye K, Zhang N, Li S (2018) Trade credit financing and stock price crash risk. J Int Finance Manag Acc 29:30–56CrossRefGoogle Scholar
  18. Chant EM, Walker DA (1988) Small business demand for trade credit. Appl Econ 20:861–876CrossRefGoogle Scholar
  19. Chen D, Liu M, Ma T, Martin X (2017) Accounting quality and trade credit. Acc Horiz 31:69–83CrossRefGoogle Scholar
  20. Cheng B, Ioannou I, Serafeim G (2014) Corporate social responsibility and access to finance. Strateg Manag J 35:1–23CrossRefGoogle Scholar
  21. Cheung Y-L, Tan W, Wang W (2018) National stakeholder orientation, corporate social responsibility, and bank loan cost. J Bus Ethics 150:505–524CrossRefGoogle Scholar
  22. Choi WG, Kim Y (2005) Trade credit and the effect of macro-financial shocks: evidence from U.S. panel data. J Finance Quant Anal 40:897–925CrossRefGoogle Scholar
  23. Costello AM (2013) Mitigating incentive conflicts in inter-firm relationships: evidence from long-term supply contracts. J Acc Econ 56:19–39CrossRefGoogle Scholar
  24. Cowton CJ, San-Jose L (2017) On the ethics of trade credit: understanding good payment practice in the supply chain. J Bus Ethics 140:673–685CrossRefGoogle Scholar
  25. Cui J, Jo H, Na H (2018) Does corporate social responsibility affect information asymmetry? J Bus Ethics 148:549–572CrossRefGoogle Scholar
  26. Cull R, Xu C, Zhu T (2009) Formal finance and trade credit during China’s transition. J Finance Intermed 18:173–192CrossRefGoogle Scholar
  27. Dass N, Kale JR, Nanda V (2015) Trade credit, relationship-specific investment, and product market power. Rev Finance 19(5):1867–1923CrossRefGoogle Scholar
  28. Dayanandan A, Donker H, Nofsinger J (2018) Corporate goodness and profit warnings. Re Quant Finance Acc 51:553–573CrossRefGoogle Scholar
  29. Delannay AF, Weill L (2004) The determinants of trade credits in transition countries. Econ Plan 37:173–193Google Scholar
  30. Dhaliwal D, Li OZ, Tsang A, Yang YG (2014) Corporate social responsibility disclosure and the cost of equity capital: the roles of stakeholder orientation and financial transparency. J Acc Pub Policy 33:328–355CrossRefGoogle Scholar
  31. Dutordoir M, Strong NC, Sun P (2018) Corporate social responsibility and seasoned equity offerings. J Corp Finance 50:158–179CrossRefGoogle Scholar
  32. El Ghoul S, Zheng X (2016) Trade credit provision and national culture. J Corp Finance 41:475–501CrossRefGoogle Scholar
  33. El Ghoul S, Guedhami O, Kwok CCY, Mishra DR (2011) Does corporate social responsibility affect the cost of capital? J Bank Finance 35:2388–2406CrossRefGoogle Scholar
  34. Fabbri D, Klapper LF (2016) Bargaining power and trade credit. J Corp Finance 41:66–80CrossRefGoogle Scholar
  35. Fabbri D, Menichini AMC (2010) Trade credit, collateral liquidation, and borrowing constraints. J Finance Econ 96:413–432CrossRefGoogle Scholar
  36. Fombrun C, Shanley M (1990) What’s in a name? Reputation building and corporate strategy. Acad Manag J 33:233–258Google Scholar
  37. Galema R, Plantinga A, Scholtens B (2008) The stocks at stake: return and risk in socially responsible investment. J Bank Finance 32:2646–2654CrossRefGoogle Scholar
  38. García-Teruel PJ, Martínez-Solano P (2010a) Determinants of trade credit: a comparative study of European SMEs. Int Small Bus J 28:215–233CrossRefGoogle Scholar
  39. García-Teruel PJ, Martínez-Solano P (2010b) A dynamic perspective on the determinants of accounts payable. Rev Quant Finance Acc 34:439–457CrossRefGoogle Scholar
  40. García-Teruel PJ, Martínez-Solano P, Sánchez-Ballesta JP (2014) Supplier financing and earnings quality. J Bus Finance Acc 41:1193–1211CrossRefGoogle Scholar
  41. Ge W, Liu M (2015) Corporate social responsibility and the cost of corporate bonds. J Acc Pub Policy 34:597–624CrossRefGoogle Scholar
  42. Giannetti M, Burkart M, Ellingsen T (2008) What you sell is what you lend? Explaining trade credit contracts. Rev Finance Stud 24:1261–1298CrossRefGoogle Scholar
  43. Girerd-Potin I, Jimenez-Garces S, Louvet P (2014) Which dimensions of social responsibility concern financial investors? J Bus Eth 121:559–576CrossRefGoogle Scholar
  44. Harjoto M, Laksmana I (2018) The impact of corporate social responsibility on risk taking and firm value. J Bus Ethics 151:353–373CrossRefGoogle Scholar
  45. Hong H, Kacperczyk M (2009) The price of sin: the effects of social norms on markets. J Finance Econ 93:15–36CrossRefGoogle Scholar
  46. Horen NV (2007) Customer market power and the provision of trade credit: evidence from Eastern Europe and Central Asia. Working paper, the World BankGoogle Scholar
  47. Huyghebaert N (2006) On the determinants and dynamics of trade credit use: empirical evidence from business start-ups. J Bus Finance Acc 33:305–328CrossRefGoogle Scholar
  48. Kane V, Dikec A, Park JY (2017) Cross-national CSR web reporting: a comparative analysis of multinational corporations in the U.S. and South Korea. Rev Pac Basin Finance Mark Policies 20:1–28Google Scholar
  49. Kim Y, Park MS, Wier B (2012) Is earnings quality associated with corporate social responsibility? Account Rev 87:761–796CrossRefGoogle Scholar
  50. Lawrenz J, Oberndorfer J (2018) Firm size effects in trade credit supply and demand. J Bank Finance 93:1–20CrossRefGoogle Scholar
  51. Lourenco IC, Callen JL, Branco MC, Curto JD (2014) The value relevance of reputation for sustainability leadership. J Bus Ethics 119:17–28CrossRefGoogle Scholar
  52. Maksimovic V, Titman S (1991) Financial policy and reputation for product quality. The Rev Finance Stud 4:175–200CrossRefGoogle Scholar
  53. Molina CA, Preve LA (2012) An empirical analysis of the effect of financial distress on trade credit. Finance Manag 41:187–205CrossRefGoogle Scholar
  54. Ng CK, Smith JK, Smith RL (1999) Evidence on the determinants of credit terms used in interfirm trade. J Finance 54:1109–1129CrossRefGoogle Scholar
  55. Nilsen JH (2002) Trade credit and the bank lending channel to monetary policy transmission. J Money Credit Bank 34:226–253CrossRefGoogle Scholar
  56. Petersen MA (2009) Estimating standard errors in finance panel data sets: Comparing approaches. Rev Financ Studies 22:435–480CrossRefGoogle Scholar
  57. Petersen MA, Rajan RG (1997) Trade credit: theory and evidence. Rev Finance Stud 10:661–691CrossRefGoogle Scholar
  58. Scholtens B (2006) Finance as a driver of corporate social responsibility. J Bus Ethics 68:19–33CrossRefGoogle Scholar
  59. Shi G, Sun J (2015) Corporate bond covenants and social responsibility investment. J Bus Ethics 131:285–303CrossRefGoogle Scholar
  60. Strike VM, Gao J, Pratima B (2006) Being good while being bad: Social responsibility and the international diversification of US firms. J International Bus Studies 37:850–862CrossRefGoogle Scholar
  61. Xu H, Dao M, Wu J (2018) The effect of local political corruption on earnings quality. Rev Quant Finance Acc 5:5.  https://doi.org/10.1007/s11156-018-0758-x Google Scholar
  62. Zerbini F (2017) CSR initiatives as market signals: a review and research agenda. J Bus Ethics 146:1–23CrossRefGoogle Scholar
  63. Zhang M, Ma L, Su J, Zhang W (2014) Do suppliers applaud corporate social performance? J Bus Ethics 121:543–557CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Accounting and Finance DepartmentUniversity of Massachusetts DartmouthDartmouthUSA
  2. 2.The Department of AccountingThe University of ToledoToledoUSA

Personalised recommendations