Do suppliers value customer firms' digital transformation? Evidence from trade credit provision

Abstract

This study explores suppliers' attitudes towards customer firms' digital transformation and its consequences from the perspective of trade credit. It finds that Chinese public firms with a higher level of digital transformation receive more trade credit from suppliers. Mechanism tests show that digital transformation improves firms' information environment and technical efficiency while reducing financial performance volatility. This, in turn, decreases the information asymmetry and default risks suppliers face, enhancing firms' access to trade credit from suppliers. Further analysis reveals that this effect is stronger in firms with larger sizes, higher market shares, stronger profitability, and lower bankruptcy risks and is more pronounced for firms headquartered in provinces with lower levels of social trust or weaker law enforcement. Finally, we highlight the economic outcomes of this effect by showing that receiving more trade credit helps firms alleviate financing constraints, reduce debt costs, and improve investment efficiency.