Does religion matter to informal finance? Evidence from trade credit in China

Chunfang Cao, Kam C. Chan, Wenxuan Hou, Fansheng Jia

Research output: Contribution to journalArticlepeer-review

Abstract / Description of output

Informal finance plays an important role in transitional economies with weak legal institutions, like China. As a major informal finance instrument, trade credit relies on informal institutions and enforcement. We argue that religion enhances the ethical climate in which firms do business, and we predict that religiosity increases trade credit, in that religion enhances enforcement by increasing non-pecuniary cost and reducing risk-taking. The results based on Chinese non-state listed firms between 2003 and 2013 confirm our prediction that firms located in high religiosity regions are associated with more trade credit, especially in regions where formal institutions are weak or formal financing channels are limited. Furthermore, we show that religiosity reduces overdue trade credit. Finally, the results are driven by Buddhism, Taoism, and Christianity but not Islam.
Original languageEnglish
Pages (from-to)1410-1420
JournalRegional Studies
Issue number10
Early online date23 Apr 2019
Publication statusPublished - 3 Oct 2019

Keywords / Materials (for Non-textual outputs)

  • trade credit
  • religion
  • informal institution
  • informal finance


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