Does ESG performance affect trade credit financing? Evidence from China

This paper explores the impact of corporate environmental, social, and governance (ESG) performance on companies' trade credit financing via a sample of publicly traded Chinese companies from 2009 to 2021. The results indicate that ESG performance has a positive effect on companies' trade credit financing. Mechanism analysis reveals that reducing corporate risk, enhancing product market competitiveness, and improving information disclosure quality are the primary channels through which ESG performance improves trade credit financing. Heterogeneity analysis reveals that the positive impact of ESG performance on trade credit financing is more significant for companies with lower levels of supplier concentration and customer concentration, as well as for companies facing higher levels of financing constraints. Further analysis shows that ESG performance helps companies obtain trade credit from both their suppliers and their customers. In addition, this paper provides evidence that ESG performance helps reduce the cost of trade credit financing.