Media Reputation of a Firm and Extent of Trade Credit Supply

Abstract

A positive corporate reputation is generally taken to be a valuable intangible resource leading to competitive advantage. In this paper we examine the association between a firm's media reputation and the amount of trade credit given in a sample of listed UK firms. We argue that media reputation is instrumental in mitigating customer information asymmetry. Consistent with expectations, our results show that a firm's willingness to extend trade credit to its customers is inversely related to its media reputation. The better its reputation, the less trade credit it allows. Moreover, the effect of media reputation on trade credit supply is stronger for younger firms and smaller firms, suggesting that media reputation is more effective in reducing trade credit given for firms lacking a well-established product performance reputation. These results document one of the ways in which corporate reputation, as an intangible resource, creates value for a firm.