Purpose As a vital financial instrument, trade credit plays a significant role in firm development and supply chain stability. While previous studies have primarily analyzed its determinants from economic and formal institutional perspectives, this paper attempts to explain variations in inter-firm trade credit through the lens of “regional trust” as an informal institutional factor. Design/methodology/approach This study employs a Two-way Fixed Effects Model to conduct a regression analysis on 20,975 samples from 3,227 A-share listed firms in China over the period from 2011 to 2022, examining the impact of regional trust on trade credit. To address potential endogeneity issues, we use the event that the region where the firm is located has won the “National Civilized City” title to build a difference-in-differences model for testing. Findings Regional trust has a significant positive impact on firms' access to trade credit, especially in regions with low information transparency and high levels of economic policy uncertainty. Additionally, firms located in regions that were awarded the “National Civilized City” title experience a significant increase in trade credit. Further analysis reveals that short-term trade credit constitutes a larger proportion of the trade credit obtained by firms, likely due to its flexibility and ability to meet immediate funding needs. Originality/value This study examines the important role of regional trust in access to trade credit from the perspective of informal institutions. It enriches our understanding of the role of informal institutions in economic behavior and provides empirical evidence for relevant policy-making.
Xu et al. (Fri,) studied this question.