Perceived Competition and Trade Credit Provision

ABSTRACT We examine how managers' perceived competition—a subjective interpretation of competitive pressures—affects firms' decisions to extend trade credit and its subsequent effects. Analyzing data from Chinese‐listed firms (2007–2020), we find a positive association between perceived competition and trade credit provision, especially among follower firms. While this strategy helps firms expand market share, it increases bad debt. On balance, however, the net effect is positive, as it reduces the likelihood of financial distress and enhances long‐term performance. Our findings indicate that perceived competition drives managers to offer trade credit that has mixed short‐term effects but yields long‐term benefits.