Strategic fit and trade credit: evidence from China

Given its widespread use, clarifying the influence of strategic fit between firms and customers on firms’ credit decisions is important. Unlike most studies focusing on individual firm characteristics, we examine the impact of strategic fit on firms’ trade credit decisions. Using a sample of Chinese listed firms from 2007 to 2022, we find that the strategic fit between a firm and its customer is positively associated with the firm’s trade credit provision. This effect is strengthened when suppliers operate in highly competitive industries, lack common institutional ownership with customers, distribute few cash dividends and face cash shortages. This reveals that strategic fit can increase suppliers’ willingness and capacity to provide trade credit. We also show that strategic fit facilitates firms’ accounts payable and improves performance. Analyzing different strategies shows that alignment with operational excellence and customer intimacy increases suppliers’ trade credit provision, while alignment with innovation has no effect. Our findings deepen the understanding of the complex relationship between strategic fit and firms’ trade credit decisions.