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

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Original languageEnglish
JournalRegional Studies
StateAccepted/In press - 10 Jan 2019

Abstract

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.

    Research areas

  • trade credit, religion, informal institution, informal finance

ID: 78429845