Linguistic attributes and trade credit: Evidence from textual analysis of earnings conference calls

In this study, we explore how the linguistic attributes of verbal language influence suppliers by focusing on trade credit using the earnings conference call setting. We hypothesize and find that suppliers tend to extend more trade credit to customers if managers of the customer firm use more positive tone relative to negative tone on conference calls, indicating that suppliers are likely to disentangle the positivity and negativity of managers' tones of their customer firms on conference calls and adjust their trade credit strategy accordingly. We also find that suppliers are likely to grant less trade credit to customer firms if managers of the customer firm use more uncertainty and litigious words on calls. Our results are supported by a number of robustness tests. Overall, our results suggest that the linguistic attributes of customer firms on earnings conference calls have a significant impact on suppliers' perception and assessment of future performance and uncertainty in customer firms.