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Corporate misconduct, trade credit and charitable donations: evidence from Chinese listed companies

Corporate misconduct, trade credit and charitable donations: evidence from Chinese listed companies The purpose of this paper is to investigate how revelations of corporate misconduct are associated with trade credit. Specifically, it investigates how this association varies in different regions, in different types of industries and in response to companies’ subsequent charitable donations.Design/methodology/approachThe authors empirically tested various hypotheses using a sample of 2,725 Chinese A-share listed companies from 2009 to 2014 based on signaling theory. Fixed effect models underpinned the methods used.FindingsThe authors found that corporate misconduct has a significant negative impact on an irresponsible company’s trade credit received and granted, and the negative impact is heterogeneous for different regions and industries. There is no evidence that charitable donations mitigate the effect on the trade credit of irresponsible companies following revelations of corporate misconduct.Practical implicationsThe results suggest that listed companies in China should obey national and local laws and regulations if they wish to avoid the risk of significant trade credit loss. If a company’s violation of these laws and regulations is disclosed, making charitable donations is not an effective strategy for safeguarding trade credit.Originality/valueThis study enriches understanding on the consequences of corporate misconduct and extends the literature on trade credit. It fills a research gap by identifying the impact of corporate misconduct on trade credit. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Chinese Management Studies Emerald Publishing

Corporate misconduct, trade credit and charitable donations: evidence from Chinese listed companies

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1750-614X
DOI
10.1108/cms-07-2017-0209
Publisher site
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Abstract

The purpose of this paper is to investigate how revelations of corporate misconduct are associated with trade credit. Specifically, it investigates how this association varies in different regions, in different types of industries and in response to companies’ subsequent charitable donations.Design/methodology/approachThe authors empirically tested various hypotheses using a sample of 2,725 Chinese A-share listed companies from 2009 to 2014 based on signaling theory. Fixed effect models underpinned the methods used.FindingsThe authors found that corporate misconduct has a significant negative impact on an irresponsible company’s trade credit received and granted, and the negative impact is heterogeneous for different regions and industries. There is no evidence that charitable donations mitigate the effect on the trade credit of irresponsible companies following revelations of corporate misconduct.Practical implicationsThe results suggest that listed companies in China should obey national and local laws and regulations if they wish to avoid the risk of significant trade credit loss. If a company’s violation of these laws and regulations is disclosed, making charitable donations is not an effective strategy for safeguarding trade credit.Originality/valueThis study enriches understanding on the consequences of corporate misconduct and extends the literature on trade credit. It fills a research gap by identifying the impact of corporate misconduct on trade credit.

Journal

Chinese Management Studies – Emerald Publishing

Published: Jul 31, 2019

Keywords: Trade credit; Signalling theory; Corporate misconduct; Charitable donations

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