Does strategic deviation influence firms’ use of supplier finance?

Abstract

We investigate how strategic deviation, capturing the extent to which firms’ resource allocations or commitments deviate from those of industry peers, affects trade credit policy. We find that it increases firms’ use of supplier-provided trade credit. This finding is noticeably more pronounced among firms exhibiting higher information asymmetry but perceptibly weaker among firms with fewer financing constraints and stronger corporate governance attributes. Our analysis also reveals that strategically deviant firms borrow less from banks and that the use of more trade credit by strategically deviant firms is associated with higher market valuation. Our results are robust and highlight that strategic deviation has important implications for corporate trade credit policy.