Confucian culture and access to trade credit: Evidence from firm relocation

Does culture partially explain differences in firms' access to trade credit? To answer this question, this paper investigates the impact of Confucian culture on Chinese listed firms' access to trade credit. We find a positive and persistent effect of Confucian culture on firms' access to credit over time. Importantly, this effect is independent of legal, financial, economic, and religious cultural factors. We separately utilize the three core Confucian tenets of “Trust as a Foundation”, “The Doctrine of the Mean” and “Universal Harmony” to explain the aforementioned effects from both theoretical and empirical perspectives. To address potential endogeneity concerns, we conduct firm relocation tests. The results show that firm relocation to areas with a weaker Confucian culture atmosphere will decrease trade credit access. Interaction analysis reveals that Confucian culture can mitigate the negative impact of legal environments and information asymmetry on firms' access to credit. We also observe that the influx of Western culture weakens the influence of Confucian culture. Our research highlights the significant role of culture in economic trade.