Does judicial procedure reform affect firms' access to trade credit? Evidence from China

Abstract

China initiated a two-year reform of civil procedure in 2020, aiming at promoting the separation of complex and simple cases. Based on the civil procedure reform, this study explores the effect of improved judicial efficiency on trade credit. Using a sample of Chinese A-share listed firms, we find that the civil procedure reform increases firms' access to trade credit by improving judicial efficiency. The positive effect on trade credit is more pronounced for firms located in regions with low social trust and those facing high financial constraints. We further document that the civil procedure reform reduces supplier concentration. Overall, our findings imply that judicial procedure reform plays a critical role in firms' access to trade credit, extending the literature on law and finance.