Corporate violations, reputation, trade credit financing and provision: evidence from an emerging market

Purpose We examine how corporate violations impact trade credit behaviors within the supply chains, focusing on both trade credit financing and provision through the lens of reputation damage and restoration. We distinguish trade credit financing under different supply chain concentrations, firm characteristics and analyst attention. Additionally, we examine how violating firms adjust trade credit provision to customers and suppliers of varying sizes. Design/methodology/approach We empirically test the hypotheses using fixed effects ordinary least squares with a sample of Chinese A-share listed companies from 2007 to 2022. Additionally, we conduct robustness tests, including the use of alternative estimation models, substitution of independent variables and the application of instrumental variables. Findings Firstly, trade credit financing declines post-violations. Secondly, companies raise trade credit provision to suppliers and customers to restore trust relationships and reputation. Thirdly, reputation acts as a mediator between violations and trade credit behaviors. Fourthly, negative effects are more pronounced in low supply chain concentration, more analysts and non-state-owned companies. Lastly, trade credit provision is increased for small suppliers and large customers to restore trust relationships and reputation. Practical implications We find corporate violations reduce trade credit financing while increasing trade credit provision, thereby increasing operating costs. Even in emerging economies with weak market institutions, firms should avoid violations to maintain trust and ensure operational stability. Originality/value We examine how violations influence credit management in supply chains, filling the research gap. Additionally, we supplement an understanding of reputation damage and restoration behaviors, contributing to the literature on how to restore reputation.