ESG and trade credit: evidence from an emerging market

We propose that ESG-advantaged companies can obtain financing support from formal finance, which improves external financing needs and thus reduces the need for trade credit. We use a sample of Chinese public companies from 2009 to 2020 to explore the role of ESG performance in firms' access to trade credit. We find a negative association between ESG performance and trade credit financing. The potential mechanism shows that ESG-advantaged firms have access to cheap external financing and abundant long-term bank loans, which crowd out demand for trade credit. This effect is more pronounced in state-owned firms, firms located in the region with a high level of financial marketization, firms in the external environment with low economic uncertainty, and firms in heavily polluting industries. Our findings enrich the existing studies on the economic consequences of ESG performance.