Abstract
We provide insight into how firms’ trade credit decisions respond to the coevolution of business ethics practices, technological innovation, and institutional reform for firms located in pilot cities of China’s social credit reform. The reform implements an external monitoring mechanism that potentially shifts the business ethics frontier by punishing or rewarding certain (un)ethical credit behaviors. Following the reform, pilot city firms enjoy greater access to trade credit financing. Three plausible channels include reduced default risk, improved information quality, and enhanced legal protection. Suppliers provide more credit to young, small, private, politically unconnected firms, and those with geographically distant suppliers. Finally, we illustrate how increased access to trade credit translates into tangible strategic and performance benefits. Overall, this study underscores the importance of aligning business ethics practices with evolving societal values and technological advancements to facilitate companies’ willingness to provide trade credit within emerging markets.
