Trust over toasts: The role of alcohol culture in firms’ access to trade credit

In markets where the formal institutions remain underdeveloped, informal mechanisms, particularly cultural norms, often play a critical role in facilitating economic transactions. This paper examines the impact of Chinese alcohol culture on firms’ access to trade credit. Using the city-level distribution of Moutai specialty stores as a proxy for the intensity of local alcohol culture, we find that a stronger alcohol culture significantly improves firms’ access to trade credit. The effect appears to operate through enhanced inter-firm relationships and reduced information asymmetry. Accordingly, the positive impact is more pronounced among firms that rely heavily on guanxi networks and operate with lower disclosure quality. Our main results are robust to a range of identification strategies, including the instrumental variables approach, the Eight Provisions shock, and cultural confounder controls. The positive effect is stronger for firms with female or locally oriented managers and for those facing higher credit or litigation risk. It is also more evident among firms in industries with higher demand for trade credit and in regions with underdeveloped formal credit systems. This paper highlights the enduring relevance of cultural practices in shaping economic behavior and offers new insights into how informal institutions can complement or substitute for formal financial systems in emerging markets.