Do corporate environmental violations affect trade credit? Evidence from China

Abstract

Using a large sample of Chinese listed companies from 2007 to 2018, we show that firms with environmental violations receive less trade credit from suppliers than their counterparts. Mutual trust and repayment ability are two plausible mechanisms through which corporate environmental violations affect trade credit. Heterogeneity tests show that this reduction is greater for firms facing fierce market competition, firms in regions with lower bank competition, and firms in regions with lower marketization. Finally, we find that the impact of corporate environmental violations can be influenced by the penalty agency level and can extend further down the supply chain.