Corporate Social Responsibility and Trade Credit

Review of Quantitative Finance and Accounting, Forthcoming

Posted: 2 Jul 2019

See all articles by Hongkang Xu

Hongkang Xu

University of Massachusetts Dartmouth

Jia Wu

University of Massachusetts Dartmouth

Mai Dao

University of Toledo - College of Business Administration

Date Written: July 1, 2019

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 2,455 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

Suggested Citation

Xu, Hongkang and Wu, Jia and Dao, Mai, Corporate Social Responsibility and Trade Credit (July 1, 2019). Review of Quantitative Finance and Accounting, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3412964

Hongkang Xu

University of Massachusetts Dartmouth ( email )

285 Old Westport Road
N Dartmouth, MA 02747-2300
United States

Jia Wu

University of Massachusetts Dartmouth ( email )

285 Old Westport Road
N Dartmouth, MA 02747
United States

Mai Dao (Contact Author)

University of Toledo - College of Business Administration ( email )

2801 W. Bancroft
Toledo, OH 43606
United States

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