Law and Borders: Entrepreneurs’ Immigration Status and Trade Credit

50 Pages Posted: 16 Oct 2020 Last revised: 29 Oct 2022

See all articles by Changqin Luo

Changqin Luo

Zhongnan University of Economics and Law

Hanwen Sun

University of Bath, School of Management

Guochao Yang

School of Accounting, Zhongnan University of Economics and Law; IIDPF, Zhongnan University of Economics and Law

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen

Date Written: October 28, 2022

Abstract

We examine whether the exclusive nature of the power of a country’s legal institutions to enforce entrepreneurs within its territories is a potential concern for creditors when extending trade credit. Utilizing the disclosure of the residency status of controlling shareholders in China, we show that their overseas residence rights negatively influence firms’ ability to obtain trade credit. This negative association is mitigated if the overseas jurisdiction concerned has an extradition treaty with China. For jurisdictions without such treaties, their bilateral political relations with China, the quality of their national governance, and that of their rule of law also have a bearing. Our results are robust to the introduction of the Hong Kong national security law as a source of exogenous variation in the boundary of domestic law. Our results offer new insights into how the reach of law across borders can affect firms’ financing activities.

Keywords: Law; Borders; Immigration; Overseas Residence Rights; Trade Credit

JEL Classification: G32;G34

Suggested Citation

Luo, Changqin and Sun, Hanwen and Yang, Guochao and Zhang, Bohui, Law and Borders: Entrepreneurs’ Immigration Status and Trade Credit (October 28, 2022). Proceedings of Paris December 2020 Finance Meeting EUROFIDAI - ESSEC, Available at SSRN: https://ssrn.com/abstract=3710484 or http://dx.doi.org/10.2139/ssrn.3710484

Changqin Luo

Zhongnan University of Economics and Law ( email )

No.143, Wuluo Road
Wuhan, Hubei 430073
China

Hanwen Sun (Contact Author)

University of Bath, School of Management ( email )

School of Management, University of Bath
Bath
Bath, BA2 7AY
United Kingdom

Guochao Yang

School of Accounting, Zhongnan University of Economics and Law ( email )

No.143, Wuluo Road
Wuhan, Hubei 430073
China

IIDPF, Zhongnan University of Economics and Law ( email )

No.143, Wuluo Road
Wuhan, Hubei 430073
China

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen ( email )

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