Judicial system reform and trade credit financing: Evidence from a quasi‐natural experiment

Abstract

AbstractThis paper examines the impact of judicial system reform on trade credit financing using a quasi‐natural experiment in China. We find that the judicial system reform promotes the trade credit financing. The reform effect is stronger for firms that are non‐state‐owned, advocating trust culture orientation, and with high relationship‐specific investment level, high debt level, and low cash holdings level. Moreover, our results show that the increase in business transaction volume and the improvement of internal control quality are important channels to increase the trade credit financing. The judicial system reform has notably improved the total factor productivity and firm value.