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Corporate violations, reputation, trade credit financing and provision: evidence from an emerging market

Changchun Chen (School of Management, University of Science and Technology of China, Hefei, China)
Jiuchang Wei (School of Management, University of Science and Technology of China, Hefei, China) (State Key Laboratory of Fire Science, University of Science and Technology of China, Hefei, China)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 19 December 2024

66

Abstract

Purpose

We examine how corporate violations impact trade credit behaviors within the supply chains, focusing on both trade credit financing and provision through the lens of reputation damage and restoration. We distinguish trade credit financing under different supply chain concentrations, firm characteristics and analyst attention. Additionally, we examine how violating firms adjust trade credit provision to customers and suppliers of varying sizes.

Design/methodology/approach

We empirically test the hypotheses using fixed effects ordinary least squares with a sample of Chinese A-share listed companies from 2007 to 2022. Additionally, we conduct robustness tests, including the use of alternative estimation models, substitution of independent variables and the application of instrumental variables.

Findings

Firstly, trade credit financing declines post-violations. Secondly, companies raise trade credit provision to suppliers and customers to restore trust relationships and reputation. Thirdly, reputation acts as a mediator between violations and trade credit behaviors. Fourthly, negative effects are more pronounced in low supply chain concentration, more analysts and non-state-owned companies. Lastly, trade credit provision is increased for small suppliers and large customers to restore trust relationships and reputation.

Practical implications

We find corporate violations reduce trade credit financing while increasing trade credit provision, thereby increasing operating costs. Even in emerging economies with weak market institutions, firms should avoid violations to maintain trust and ensure operational stability.

Originality/value

We examine how violations influence credit management in supply chains, filling the research gap. Additionally, we supplement an understanding of reputation damage and restoration behaviors, contributing to the literature on how to restore reputation.

Keywords

Acknowledgements

This research was funded by the National Natural Science Foundation of China grants #71921001 and #72293573, the Fundamental Research Funds for the Central Universities (YD2160004004), and the New Era Education Quality Project of Anhui Province in 2022 (postgraduate education) [Project Number: 2022zyxwjxalk003].

Additionally, I would like to extend my heartfelt thanks to my senior colleague, Wang Xuan, for her invaluable guidance and assistance during the theoretical framework development of this research. I am also grateful to the Government Investment and Financing Research Center at the School of Public Affairs, University of Science and Technology of China, for their support and contribution to this work.

Citation

Chen, C. and Wei, J. (2024), "Corporate violations, reputation, trade credit financing and provision: evidence from an emerging market", International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJOEM-03-2024-0397

Publisher

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Emerald Publishing Limited

Copyright © 2024, Emerald Publishing Limited

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