Does business strategy influence interfirm financing? Evidence from trade credit

Zhangfan Cao, Steven Xianglong Chen, Edward Lee

Research output: Journal PublicationArticlepeer-review

23 Citations (Scopus)


This paper investigates the impact of business strategy on firms’ trade credit policies. We find that firms following an innovation-oriented strategy (prospectors) offer significantly more trade credit to their customers than those following an efficiency-oriented strategy (defenders). Furthermore, by exploiting two exogenous shocks to the supplies of high-skill employees and bank credit, we find that prospectors curtail trade credit in response to the reduction of talent mobility following the adoption of Inevitable Disclosure Doctrine, whereas defenders significantly increase provisions of trade credit following the increase in bank credit supply due to the relaxation in interstate branching regulations. Additional evidence substantiates that prospectors increasing trade credit provisions enjoy higher sales generation efficiency and superior performance. Finally, our supply chain analysis documents that prospectors also receive significantly more trade credit from their suppliers. Collectively, our findings highlight that business strategy is an important yet intrinsic determinant of supply chain financing.

Original languageEnglish
Pages (from-to)495-511
Number of pages17
JournalJournal of Business Research
Publication statusPublished - Mar 2022


  • Business strategy
  • Customer-supplier relationship
  • Defender
  • Prospector
  • Supply chain financing
  • Trade credit

ASJC Scopus subject areas

  • Marketing


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