Suppliers’ response to corporate site visits at customers firms

Abstract

We examine the relationship between corporate site visits by institutional investors and the provision of trade credit to these firms by their suppliers and find a positive relationship between the frequency of site visits and the level of supplier trade credit. This relationship is more pronounced among firms with less transparent information environments and greater financial constraints. The findings suggest that corporate site visits reduce information asymmetry and mitigate credit risks by curbing excessive managerial risk-taking, thereby increasing suppliers’ willingness to provide trade credit. Further, a textual analysis of the communications exchanged during corporate site visits reveals a stronger relationship between corporate site visits and trade credit when more information pertaining to the supply chain is disclosed during these visits. The results are robust to a variety of robustness checks for potential endogeneity. This research enriches the literature on the role of information quality in supply-chain finance. It sheds light on the broader implications of corporate site visits on intra-firm stakeholder dynamics.