Trade Secrets and Trade Credit Provision

ABSTRACT This paper investigates whether and how trade secrets, as an important intellectual property asset of firms, impact trade credit provision. Examining 8044 US firms during the period from 1995 to 2023, we find that firms relying more on trade secrets extend less trade credit to customers. Our findings remain robust across a battery of sensitivity tests and endogeneity tests. Further mediation analysis reveals that this negative association stems from heightened information asymmetry and enhanced market power derived from proprietary knowledge. Finally, we document that trade credit provision partially mediates the relationship between trade secrecy and firm value.