Pension plans’ funded status volatility and corporate credit risk

Chen, Tsung-Kang; Tseng, Yijie; Lin, Ruey-Ching

doi:10.1080/00014788.2022.2113757

Cited by 2 publications

(5 citation statements)

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“…From the perspective of market competition, some empirical studies argue that intense competition in the product market and industry increase the incentive to provide trade credit to maintain market share or limit rivalry (Zhang and Wang, 2019; Yu and Pan, 2010; Dass et al , 2015; Wu et al , 2017a). From the perspective of firm characteristics, a substantial number of prior studies already explored the trade credit is affected by firm size (Qu and Huang, 2012), CC (Wu and Yu, 2017; Chen, 2017), firm nature (Yu and Pan, 2010) and firm strategy (Wu et al , 2017b).…”

Section: Institutional Background and Literature Reviewmentioning

confidence: 99%

“…Trade credit supply is not only a short-term investment for firms to attract customers (Chen and Liu, 2018) but also a tool for market competition (Wu et al , 2017a). When a firm is subject to interest competition from customers and competition for upstream and downstream resources by peer firms (Chen, 2017), the firm may take the initiative to provide trade credit to their customers to increase the stickiness of existing customers and prevent the loss of their original customers (Fisman and Raturi, 2004); even, they use this method to capture competitors’ customers and expand market share. Therefore, when facing a competitive threat from the rivals, the firm adopts a “tit-for-tat” strategy to counteract the threat to its competitive position by imitating the rivals’ behavior.…”

Section: Research Hypothesismentioning

confidence: 99%

“…Firms are not only subject to competition of interests from customers but also the competition for upstream and downstream resources from other firms in the same industry (Chen, 2017). Therefore, to gain competitive advantages and compete for more customer resources, firms imitate peer firms’ trade credit supply to maintain their relatively competitive position or limit rivalry.…”

Section: The Mechanism Of Action Testmentioning

confidence: 99%

“…From the perspective of firms, CC not only conveys important information about good market conditions of firms to the capital market but also brings considerable economic benefits to firms (Chen, 2017), which creates conditions for firms to provide trade credit to customers. According to Wu and Yu (2017) and Chen (2017), firms provide more trade credit with high CC. And, firms with high CC, get more information about customers’ needs in contacting with customers, so they respond timely according to customer needs.…”

Section: The Mechanism Of Action Testmentioning

confidence: 99%

“…And, firms with high CC, get more information about customers’ needs in contacting with customers, so they respond timely according to customer needs. On the contrary, firms with low CC are in a disadvantageous competitive position, on the other hand, they bear the pressure of customer churn, and on the other hand, they are also subject to the plundering of resources by peer firms (Chen, 2017), which makes the firm is bound to pay more attention the peer firms’ trade credit supply and actively respond to prevent customer churn and avoid being driven out of the markets by other peers. Thus, the industry peer effect on trade credit supply is more pronounced among low-CC firms.…”

Section: The Mechanism Of Action Testmentioning

confidence: 99%

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Active imitation or passive reaction: research on the peer effect on trade credit

Bai

2023

NBRI

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Purpose Using a sample of manufacturing firms listed in China between 2007 and 2019, first, this paper aims to examine whether peer firms influence corporate trade credit supply. Next, the authors examine the channels through which peer firms influence corporate trade credit supply by testing the predictions of rivalry and information theories. Furthermore, the authors examine the heterogeneity of the industry peer effect on corporate trade credit supply. Finally, the authors examine the economic consequences of the industry peer effect on corporate trade credit supply. Design/methodology/approach The sample includes all manufacturing firms listed on both the Shanghai and Shenzhen securities exchanges for the sample period from 2007 to 2019, and the data come from the China Stock Market & Accounting Research database. The authors use the fixed effects method to examine the industry peer effect on trade credit supply. The results are robust to a series of robustness tests. To address the potential endogeneity problem, the authors adopt appropriate instruments by estimating instrumental variable models (two-stage least square). The authors use Heckman’s two-stage model to mitigate the sample selection bias. Findings The authors provide strong empirical evidence showing that the industry peer effect on trade credit supply exists in the manufacturing sector. It is also found that both competitive rivalry-based and information-based theories can provide explanations of the industry peer effect on trade credit supply. This process is both active imitation and passive reaction. Additional analysis suggests that the industry peer effect on trade credit supply is more pronounced for state-owned firms, firms with low customer concentration and firms with high geographical proximity. The amplification effect and spillover effect are the economic consequences of the industry peer effect on trade credit supply. In other words, the trade credit supply based on peer effect will not only increase the liquidity risk of the firm per se but also induce and increase the liquidity risk of the industry. Originality/value The study makes some important contributions. First, the authors find robust evidence that peer firms’ trade credit supply is an important factor in explaining corporate trade credit supply, which extends the literature by connecting the firm’s trade credit supply with the peer effect. Second, the study provides a new micro-perspective for understanding that firms use trade credit supply as a tool of competition, which proves the importance of rivals’ decision-making as a determinant of corporate decisions. Third, the authors examine the industry peer effect on trade credit supply, which not only helps to guide firms to pay more attention to the potential risk and spillover effects of the trade credit supply decision-making relevance but also helps to clarify the industry interaction phenomenon of corporate decision-making behavior. It is an important practical significance to play a role as a bridge between the microlevel of the firm and the meso-level of the industry. Finally, the study provides inspiration for the formulation of industry norms and policies.

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Section: Institutional Background and Literature Reviewmentioning

confidence: 99%

Section: Research Hypothesismentioning

confidence: 99%

Section: The Mechanism Of Action Testmentioning

confidence: 99%

Section: The Mechanism Of Action Testmentioning

confidence: 99%

Section: The Mechanism Of Action Testmentioning

confidence: 99%

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