CEOs' Hometown Connections and Access To Trade Credit - Evidence From China - Availabel January 2020 PDF

Journal of Corporate Finance 62 (2020) 101574
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Journal of Corporate Finance

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CEOs' hometown connections and access to trade credit: Evidence

T
from China
⁎ ⁎
Dongmin Konga, Yue Panb, Gary Gang Tianc, , Pengdong Zhangb,
a
Huazhong University of Science and Technology, China
b
Xiamen University, China
c
Macquarie University, Australia
A R T IC LE I N F O ABS TRA CT
Keywords: In this study, we investigate how informal institutions, namely, chief executive officers' home-
Hometown connections town connections with suppliers, impact firms' access to trade credit. Using unique data manually
Trade credit collected from China, we find that hometown connections significantly increase access to trade
CEOs credit. The hometown effect is more pronounced for non-state-owned firms, firms in provinces
Suppliers
with poorly developed financial institutions, and firms whose chief executive officers come from
hometowns with a strong merchant guild culture or hold an important position in the home-
town's chamber of commerce. We suggest two plausible channels for the hometown effect: in-
formation and social trust. Overall, this study contributes to the literature by documenting how
hometown connections help firms to obtain external financing in emerging markets.
1. Introduction
The question of whether and how trade credit is influenced by informal institutions, especially social connections, is far from fully
understood, even though numerous studies have examined why firms receive or grant trade credit from the perspectives of product or
firm characteristics (e.g., Lee and Stowe, 1993; Petersen and Rajan, 1997). In this study, we propose and test a novel determinant of
firms' likelihood of receiving trade credit from suppliers—homophily, that is, the sociological principle that individuals tend to
associate and interact with others who have similar backgrounds and characteristics, such as ethnicity, age, gender, and education
(e.g., McPherson et al., 2001; Granovetter, 2005; Stolper and Walter, 2018).1
The pervasiveness of homophily means that cultural, behavioral, genetic, or material information that flows through networks
tends to be localized (McPherson et al., 2001). Common places of origin play an important role in individual growth and create
contexts in which homophilous relations form, breeding hometown connections between individuals. Although the literature has
documented well the impacts of hometown connections on stock investment (e.g., Coval and Moskowitz, 2010) and resource allo-
cation of governments (Knight, 2008; Cohen et al., 2011; Hodler and Raschky, 2014), surprisingly little is known about their
⁎
Corresponding authors.
E-mail addresses: kongdm@hust.edu.cn (D. Kong), panyue@xmu.edu.cn (Y. Pan), gary.tian@mq.edu.au (G.G. Tian),
zhangpengdong@126.com (P. Zhang).
1
Previous studies attribute social connections to a sense of familiarity and trust between individuals of similar backgrounds and document the
important effects of social connections, for example, in the context of boards (Cohen et al., 2012; Engelberg et al., 2013; Ishii and Xuan, 2014),
mutual fund performance (Cohen et al., 2008), securities analyst recommendations (Cohen et al., 2010), bank financing (Engelberg et al., 2012; Lin
et al., 2013), and venture capital markets (Hegde and Tumlinson, 2014). However, there is a lack specific evidence for the impact of homophily on
corporate behavior.
https://doi.org/10.1016/j.jcorpfin.2020.101574
Received 5 February 2019; Received in revised form 26 November 2019; Accepted 8 January 2020
Available online 10 January 2020
0929-1199/ © 2020 Elsevier B.V. All rights reserved.
D. Kong, et al. Journal of Corporate Finance 62 (2020) 101574
economic consequences at the firm level. We conjecture that hometown connections should play an important role in opaque and
high-risk markets, such as the supply of trade credit, the practice of buying now and paying later, in which both suppliers and
customers face severe information asymmetries and moral hazard (Wu et al., 2014). The hometown effect should be more pro-
nounced in emerging markets that have poorly developed formal financial systems, such as bank lending and bond markets (Liu et al.,
2016), and thus, borrowers rely heavily on trade credit as an alternative source of financing (Lee and Stowe, 1993; Cull et al., 2009).
In this study, we shed light on whether and how access to trade credit is influenced by homophily by examining the relationship
between the hometown connections of chief executive officers (CEOs) and firms' access to trade credit. Granovetter (2005) argues
that social connections can serve as information channels and influence economic decisions. Connections based on homophily fa-
cilitate the selection of business partners because of better access to superior information within social networks, and shared norms
and discourse may improve coordination and monitoring among socially close individuals after these individuals form a partnership
(Hegde and Tumlinson, 2014).
We consider that CEOs' hometown connections with suppliers, as a basic source of social ties, are relevant to firms' access to trade
credit for two reasons. First, the exchange of information facilitated by connections between customers and suppliers can mitigate
concerns over uncertainty when partners form a business relationship (Uzzi, 1996; Uzzi and Lancaster, 2003). Second, the CEO's prior
exchange experience, including that with suppliers, increase the likelihood of subsequent interorganizational exchange by enhancing
mutual trustworthiness and reliability (Barden and Mitchell, 2007), which in turn alleviates concerns over opportunism that cannot
be fully addressed contractually (Uzzi, 1997). Therefore, we hypothesize that CEOs' hometown connections with suppliers help firms
to access trade credit. To test our hypothesis, we analyze data collected from Chinese firms listed on both the Shanghai and Shenzhen
securities exchanges for the sample period from 2007 to 2016.
The institutional environment of the Chinese market provides the ideal setting in which to investigate this question for the
following reasons. First, hometown connections (laoxiang in Chinese) play a central role in guanxi, the culture of favor exchange in
Chinese society (Fisman et al., 2018). As Chen and Chen (2004) observe, hometown connections are among the most common and
distinctive bases on which guanxi is built. As members of a relationship-centered society strongly influenced by Confucianism, the
Chinese often define themselves in relation to others and view hometown connections as an essential foundation of their self-identity
(Jacobs, 1982; Yang, 1994). Such depersonalized affection among those who share a hometown resulting from the process of social
categorization and identification (Turner et al., 1987; Tsui and Farh, 1997) facilitates communication in common dialects, checking
credit worthiness through hometown networks, and the formation of a coherent identity (Pan et al., 2018). Therefore, it is important
to examine whether CEOs' hometown connections, as an important type of social tie, influence firms' ability to obtain trade credit. We
expect that CEOs' hometown connections should play an important role in helping firms to access trade credit, because such con-
nections enable firms to build trust and mitigate information asymmetry between firms and suppliers.
Second, Chinese firms mainly support their growth through informal financial channels that rely largely on implicit contractual
relations (Ge and Qiu, 2007). Thus, trade credit, as the most important form of informal financing, plays an even more important role
in China than in developed economies. China provides a unique setting for us to test how firms in a country with a poorly developed
financial sector fund potential growth opportunity.
Third, China's weak legal system provides insufficient protection for creditors and puts suppliers of trade credit at high risk of
default (Peng and Luo, 2000; Liu and Tian, 2012). Therefore, it is particularly important to explore ways in which Chinese firms can
reduce credit risks and obtain trade credit. Allen et al. (2005) point out that China is an important counterexample to findings in the
literature on law, institutions, finance, and growth because of the coexistence of its weak legal system and rapidly growing economy.
The authors conjecture that alternative governance mechanisms, such as those based on reputation and relationships, must support
growth, especially in the private sector. Therefore, China is an ideal setting for studying the role of informal institutions as a
substitute for a good legal environment (Karlan, 2005).
We identify the suppliers registered in CEOs' hometown province (hereafter, “hometown suppliers”) and sum the shares of inputs
that the listed firms purchased from these hometown suppliers to construct the variable HOMEPUR. For example, if two of the top five
suppliers are registered in CEOs' hometown province and the listed firm purchases 14% and 10% of all goods and services in the
observed fiscal year from these two hometown suppliers, respectively, then HOMEPUR takes a value of 0.24 (=14% + 10%). In our
baseline regression, HOMEPUR is used to explain listed firms' trade credit. The empirical results show that CEOs' hometown con-
nections help firms to access trade credit. Specifically, we find that a 1 standard deviation increase of share purchased from
hometown suppliers results in a 0.494% increase of the trade credit ratio (equivalent to about 14.2 million RMB in trade credit).
By investigating cross-sectional variation based on features of Chinese institutions, we confirm that the effect of CEOs' hometown
connections on firms' access to trade credit is greater in firms that are not state-owned and in firms located in provinces with poorly
developed financial institutions. We further find that the hometown effect is more pronounced in regions with stronger informal
institutions, such as a strong merchant guild culture in CEOs' hometown, and in firms whose CEOs hold an important position in the
hometown chamber of commerce.
To provide direct evidence to support our finding that CEOs' hometown connections help firms to access trade credit, we further
hypothesize that hometown connections enhance transparency and social trust, which in turn increases the probability of obtaining
trade credit from the supplier. Then, we investigate whether the relationship between hometown connections and trade credit varies
between firms with different levels of information opacity and firms located in regions with different levels of social trust. Using high
information opacity and low level of social trust as measures for high credit risk faced by suppliers, we find that the positive
relationship between CEOs' hometown connections and trade credit is strengthened when suppliers face high credit risk.
We use several approaches to address potential endogeneity issues. First, to control the variation of characteristics of CEOs'
hometown provinces, we add fixed effects at different dimensions: CEO's hometown province, CEO's hometown province × year, and
2
CEO's hometown province × year × listed firm industry. Second, we find that our conclusion is robust using two-stage least square
(2SLS) instrumental variable estimation. The two instrumental variables selected are rice acreage in 1978 in the provinces where the
listed firms are located (hereafter, “listed firm provinces”) and the number of dialects in that province. We document that less rice
farming and more dialects in the listed firm province generate weaker social trust, which makes CEOs more likely to find trustworthy
suppliers in their hometown. Third, we construct two propensity score matching–difference in differences (PSM-DID) models for two
situations: existing connections broken and new connections emerged after the CEO changed. The results support our hypothesis that
new connections emerged increase trade credit to listed firms while existing connections broken reduce firms' access to credit. Finally,
we identify the supply role of trade credit by investigating the relationship between hometown connections and trade credit during
and after the global financial crisis (GFC; Love et al., 2010; Liu et al., 2016) and industry crisis (Yonker, 2017), when the overall
credit risk is higher and information asymmetry between suppliers and receivers of trade credit is greater.
Moreover, we provide evidence that our results are robust to alternative measures of key variables. Furthermore, our conclusion
holds when we exclude firms hiring local CEOs to rule out the alternative explanation of geographical distance. Limiting the sample
to the five largest disclosed counterparties of accounts payable, we verify our argument at the supplier level. The results support the
role of CEOs' hometown connections in firms' access to trade credit.
Our study contributes to the literature in the following ways. First, we contribute to the literature on the role of social connections
in corporate financial decisions. Previous studies provide substantial evidence that social connections (from school, work, etc.) have
an important influence on corporate financing in terms of bank loans (Engelberg et al., 2012; Lin et al., 2013), venture capital (Hegde
and Tumlinson, 2014), and the angels market (Venugopal, 2017), but there is a lack of evidence for whether such connections
influence the supply of trade credit. This is the first study in the literature to examine this issue from the perspective of hometown
connections between CEOs and suppliers from their hometowns, which is an important type of social tie. We document a significant
positive influence of hometown connections.
Second, our study contributes to the literature on firms' access to trade credit. Unlike financial variables and product or firm
characteristics (Lee and Stowe, 1993; Petersen and Rajan, 1997; Nilsen, 2002; Mateut et al., 2006; Cunat, 2006; Giannetti et al.,
2011), very few personal characteristics of managers, other than professional connections (Liu et al., 2016), have been investigated in
terms of their influence on trade credit. Our study provides new evidence and enriches this literature.
Third, only very recently have a few studies emerged to show how firm-to-firm trade network facilitates the formation of sup-
plier–customer linkage (Bernard and Moxnes, 2018; Bernard et al., 2019a, 2019b; Carvalho and Tahbaz-Salehi, 2019).2 Our study, by
focusing on hometown connections between suppliers and customers, complements this literature. We create and test the hypothesis
that hometown connections enhance transparency and social trust, which in turn increases the probability of accessing trade credit
from suppliers. Our confirmed results suggest that network effects, such as “hometown connections”, reduce search costs and improve
the probability and quality of matching.
Finally, this study helps to explain the contradiction between China's rapid economic growth and its poorly developed legal and
financial systems, first proposed by Allen et al. (2005), by showing how hometown connections, as a type of informal institution, ease
corporate financial constraints. Our findings point to a plausible financing mechanism of firms in emerging economies whose fi-
nancial markets lack development. Meanwhile, our results also help to explain the ubiquity of Lao Xiang Hui (hometown associations)
and Hui Guan (guild halls) based on place of origin among migrant communities within China and the global Chinese diaspora.
The rest of this paper is organized as follows. Section 2 discusses related studies and develops our hypotheses. Section 3 describes
the sample selection and research design. The empirical results and analysis are presented in Section 4. Section 5 concludes.
2. Hypothesis development
Information asymmetry and moral hazard are the main causes of credit rationing and high costs in financial markets (e.g., Jaffee
and Russell, 1976; Stiglitz and Weiss, 1981). When providing trade credit, suppliers neither charge interest nor require collateral from
customers, and thus, expose themselves to high credit risks that result in great loss when a customer defaults (Wu et al., 2014).
Hometown connections, however, could help to spread information and build trust, thereby reducing uncertainty and opportunism in
the business relationship. Specifically, we expect that CEOs' hometown connections with suppliers reduce the credit risk faced by
suppliers and help firms to access more trade credit via the following mechanisms.
First, CEOs' hometown connections with suppliers could alleviate information asymmetry between customers and suppliers,
thereby mitigating uncertainty in the business relationship (Uzzi, 1996; Uzzi and Lancaster, 2003). Chinese entrepreneurs prefer to
recruit and do business with those from their own hometowns (Redding, 1990), and corporate executives are widely connected
through hometown ties (Hamilton, 1996; Douw, 1999). Information on customer firms would be transmitted by people with these
ties, which could directly stimulate the flow of information between customers and suppliers. Furthermore, Podolny (1994) argues
that decision makers tend to take information cost into consideration if the cost is high and serious information asymmetry exists. The
spread of information through the hometown network facilitates the verification of such information and enables suppliers to monitor
customers, which may result in more provision of trade credit.
2
For example, using large datasets from a credit reporting agency in Japan identifying firms' customers and suppliers, Bernard et al. (2019b) show
that lower search and outsourcing costs lead firms to search more and find better suppliers, which in turn drives down marginal costs. Bernard et al.
(2019a) further document that larger firm size can be derived from high production capability, more or better buyers and suppliers, and/or better
matches between buyer and suppliers using datasets of buyer–supplier relationships in Belgium.
3
Second, CEOs' hometown connections with suppliers could help to improve their reputation and interpersonal trust (Barden and
Mitchell, 2007), alleviating concerns about opportunism that cannot be fully addressed contractually (Uzzi, 1997). Guiso et al. (2004)
find that the amount of trade credit accessible to customers depends largely on suppliers' trust. In addition, hometown connections
could cultivate a favorable impression (Chen and Chen, 2004) and cause suppliers to regard customers' behavior more favorably
(Uzzi, 1996). Thus, commitments to repay by customer firms whose CEOs have hometown connections with suppliers would be
regarded as reliable and trustworthy. However, if CEOs were to renege on their commitment to suppliers with whom they were
connected, such as by failing to pay trade credit at maturity, their reputations in the network would be damaged (Hwang, 1987; Yang,
1994). Therefore, just as Corwin and Schultz (2005) suggest that bringing a friend to the table may alleviate moral hazard, we expect
that CEOs' hometown connections, as an important type of social tie, would help firms to access more trade credit. Based on this
discussion, we propose the following hypothesis.
H1. CEOs' hometown connections with suppliers are positively associated with firms' access to trade credit.
If, as expected, CEOs' hometown connections help firms to access trade credit by alleviating information asymmetry and im-
proving social trust, one rational extension of this conjecture is that CEOs' hometown connections should play a more important role
when firms have greater need for trade credit and when more severe information asymmetry exists between suppliers and customers.
Firms locating in an institutional environment with backward financial marketization rely more on informal financing, such as trade
credit (Allen et al., 2005). This is especially true for non-state-owned firms, which lack an implicit guarantee from the government
and generally have fewer assets and less information transparency. Thus, we hypothesize as follows.
H2. There is a more pronounced positive relationship between CEOs' hometown connections and firms' access to trade credit in firms
located in regions with poor developed financial market and non-SOEs.
Based on these arguments, we further conjecture that CEOs' hometown connections play a more important role in firms' access to
trade credit when it is easier to build social trust. With a weak legal system, social trust in Chinese society mainly stems from its
informal institutions, such as the merchant guild and hometown chambers of commerce, which are widespread in China. First, the
merchant guild culture in China is associated with honesty and justice, which played a role in relieving moral hazard in ancient
Chinese commercial activities (Golas, 1977; Du et al., 2017). CEOs born into a strong merchant guild culture are more likely to earn
the trust of and obtain help from hometown suppliers. Second, we expect that holding a position in a hometown chamber of com-
merce might be helpful for a CEO to establish a good reputation among hometown suppliers and might signal that corporate
statements and decisions made by the CEOs are more trustworthy. Thus, we hypothesize as follows.
H3. There is a more pronounced positive relationship between hometown connections and firms' access to trade credit when the
CEO's hometown has a strong merchant guild culture or the CEO holds an important position in the hometown chamber of commerce.
3. Data, variables, and methodology
3.1. Data
Our sample includes all firms listed on both the Shanghai and Shenzhen securities exchanges for the sample period from 2007 to
2016. Our data come from three sources. First, we obtain financial data and data on firms' top five suppliers from the China Stock
Market & Accounting Research database, a widely used database in studies on China. Second, we manually collect information on the
top five suppliers' locations (registered provinces) from the National Enterprise Credit Information Publicity System (http://www.
gsxt.gov.cn), by the names disclosed in the annual reports. Third, we manually identify the locations of CEOs from firms' public
announcements, firm-related news, and search engines (Google and Baidu).
In identifying a person as a CEO, we follow Kato and Long's (2006) criteria that (1) if the chairperson also works as the general
manager, he or she is classified as the CEO and (2) if the chairperson is paid by the firm, he or she is classified as the CEO; otherwise,
the general manager is regarded as the CEO.
We exclude the following observations: suppliers whose names are undisclosed (e.g., suppliers recognized only as “supplier one,”
“supplier two,” etc.); suppliers that are overseas enterprises (including Hong Kong, Macao, and Taiwan); suppliers that are disclosed
in ambiguous abbreviations; CEOs whose hometown provinces are not identified; firms listed in the financial industry (because of
different accounting standards); and special treatment firms with financial troubles. To minimize the effect of outliers, we winsorize
our sample at 1% on each continuous variable in each tail. The final sample consists of 3472 firm-year observations from 2007 to
2016.
3.2. Variables
3.2.1. CEOs' hometown connections

To create the key independent variables of hometown connections, we first identify suppliers registered in CEOs' hometown
provinces and then sum up the shares that the listed firms purchase from these hometown suppliers for each specific firm-year. The
following example illustrates the process.
Assume listed firm XYZ is headquartered in Beijing and its CEO was born in Zhejiang province. First, we collect all the information
available for suppliers, that is, the top five suppliers, from XYZ's annual report in a given fiscal year, say 2016, including the name
4
(e.g., suppliers A, B, C, D, and E) and the supplier shares purchased (amount that XYZ spent on purchases from suppliers A, B, C, D,
and E over the total purchase from all suppliers in 2016, e.g., 14%, 12%, 10%, 8%, and 6%, respectively). Second, we identify
suppliers' registration province by matching the names of suppliers A, B, C, D, and E with the National Enterprise Credit Information
Publicity System (http://www.gsxt.gov.cn). Third, we identify “hometown suppliers” if the registration province of the supplier is the
same as the CEO's hometown, Zhejiang province. A dummy variable HOMECON created at the firm level takes the value of 1 if there is
at least one supplier registered in Zhejiang province. Finally, we sum up the shares purchased from hometown suppliers and construct
the continuous variable HOMEPUR (e.g., suppliers A and C are registered in Zhejiang province while suppliers B, D, and E are not;
then, the value of HOMEPUR is 14% + 10% = 24%).
We use the continuous variable HOMEPUR, which contains more information than HOMECON, as the key independent variable in
our baseline tests and we adopt the dummy variable HOMECON as the alternative measurement of CEOs' hometown connections to
test the robustness of our results.
3.2.2. Trade credit

Following existing studies, such as Petersen and Rajan (1997), Fisman and Love (2003), Giannetti et al. (2011), Wu et al. (2014),
and Liu et al. (2016), we define our key dependent variable, firms' access to trade credit (CREDIT), as total accounts payable divided
by total assets.
We also measure trade credit in three other ways for robustness checks. First, we create the variable L_CREDIT, or total accounts
payable divided by total liabilities, following Fisman and Love (2003). Second, following Liu et al. (2016), we use the net amount of
accounts payable and accounts receivable divided by total assets (NET_CREDIT). Third, based on Ge and Qiu (2007), we divide
accounts payable into transaction and financing components and use the financing component only (accounts payable with
terms > 1 year), scaled by total assets (FIN_CREDIT), as an alternative measure of trade credit.
3.2.3. Control variables

For consistency with the literature, we follow Ge and Qiu (2007), Wu et al. (2014), and Liu et al. (2016) and introduce control
variables for capturing other determinants related to trade credit. In addition to variables at the firm level, we control the char-
acteristics of CEOs (e.g., gender, age, education, and tenure), suppliers (e.g., registered capital and age), and transaction char-
acteristics (e.g., purchased shares of listed firms from all top five suppliers, local suppliers, and overseas enterprises). Detailed
definitions of all variables used in this study are reported in Appendix A.
3.3. Descriptive analysis and univariate tests
Table 1 presents the descriptive statistics. Summary statistics for our main regression variables are reported in panel A. On
average, Chinese listed firms receive trade credit worth 8.86% of total assets and 23.64% of total liabilities, which are consistent with
Wu et al. (2014) and Liu et al. (2016). When using the net value of accounts payable and receivable to measure the trade credit, it is
worth −1.62% of total assets. The proportion of accounts payable with terms > 1 year is 0.82%, scaled by total assets. Other main
results show that 71.77% of our sample firms have at least one supplier registered in CEOs' hometown province, and the average
share purchased from hometown suppliers is 16.08%.
Panel B of Table 1 reports results of the univariate tests, in which we compare the characteristics at the level of the firm, CEO, and
supplier between firms with and without hometown connections. Our results show that firms with CEO hometown connections use
trade credit worth 9.2% of assets, whereas firms without such connections use trade credit worth only 8.1% of assets; this difference
(1.1 percentage points) is statistically significant at the 1% level. The results hold when we repeat the univariate tests for other
dependent variables (L_CREDIT, NET_CREDIT, and FIN_CREDIT). These results confirm our hypothesis that CEOs' hometown con-
nections help firms to access trade credit. Moreover, on the one hand, firms with CEOs' hometown connections have a longer history,
more fixed assets, and more operating cash, comprise a larger percentage of state-owned enterprises, and usually purchase from
smaller suppliers, suggesting greater bargaining power against counterparties and less likelihood of the CEO seeking help from
hometown suppliers. On the other hand, connected firms have lower earnings before interest and tax (EBIT) and return on assets
(ROA) and less research and development (R&D) expenditure, are located in regions with poorly developed financial markets and
insufficient social trust, and are managed by CEOs with shorter tenure and from hometowns with a strong merchant guild culture,
suggesting stronger motivation for the CEO to seek help from hometown suppliers. Since the mean and median of these variables
significantly differ between these two groups, we control these variables in our regressions.
3.4. Regression models
To examine the effect of CEOs' hometown connections on firms' access to trade credit, we use the following baseline regression
model:
CREDITi,t = β0 + β1 × HOMEPURi,t + β2 × Xi,t + Firm and Year Dummies + ε (1)
where the dependent variable (CREDIT) is firms' access to trade credit measured by total accounts payable divided by total assets. The
independent variable HOMEPUR is the sum of the shares purchased from hometown firms among the top five suppliers. X is a vector
of control variables defined in Appendix A. Because trade credit is generally short term, trade credit at the year-end is mainly affected
by the major suppliers in the current year, and thus, we use all independent variables for the current year, consistent with Liu et al.
5
Table 1
Descriptive statistics.
Panel A
Variable Obs Mean Std.Dev. Min Max
CREDIT 3472 0.0886 0.0688 0.0032 0.3410

L_CREDIT 3472 0.2364 0.1692 0.0096 0.7707
NET_CREDIT 3472 −0.0162 0.0925 −0.2919 0.2517
FIN_CREDIT 3472 0.0082 0.0176 0.0000 0.1097
HOMEPUR 3472 0.1608 0.2094 0.0000 1.0000
HOMECON 3472 0.7177 0.4502 0.0000 1.0000
SIZE 3472 21.7767 1.1951 19.2952 25.2833
AGE 3472 2.6871 0.4263 1.3863 3.3673
PPE 3472 0.2278 0.1701 0.0017 0.7156
ROA 3472 0.0378 0.0546 −0.1883 0.2020
EBIT 3472 0.0558 0.0584 −0.1611 0.2529
CASH 3472 0.0402 0.0772 −0.2242 0.2563
LEV 3472 0.4323 0.2220 0.0398 0.9560
R&D 3472 0.0140 0.0166 0.0000 0.0846
SOE 3472 0.3589 0.4797 0.0000 1.0000
CEOSEX 3472 0.9554 0.2065 0.0000 1.0000
CEOAGE 3472 3.9461 0.1361 3.5553 4.2767
CEOEDU 3472 0.9113 0.2844 0.0000 1.0000
CEOTEN 3472 3.6881 3.1897 0.0000 13.0000
SUPCAP 3472 7.4860 2.6607 2.2209 13.4945
SUPAGE 3472 2.2257 0.5372 0.6931 3.4965
TOPFIVESUP 3472 0.3820 0.2285 0.0000 1.0000
LOCALSUP 3472 0.0676 0.1333 0.0000 0.9030
FOREIGN 3472 0.0225 0.0592 0.0000 0.3627
Panel B Univariate tests
HOMECON = 1 HOMECON=0 Difference
N Mean N Mean
Firm characteristics
CREDIT 2492 0.092 980 0.081 0.011⁎⁎⁎
L_CREDIT 2492 0.244 980 0.218 0.026⁎⁎⁎
NET_CREDIT 2492 −0.01 980 −0.031 0.021⁎⁎⁎
FIN_CREDIT 2492 0.009 980 0.006 0.003⁎⁎⁎
SIZE 2492 21.762 980 21.813 −0.051
AGE 2492 2.699 980 2.657 0.042⁎⁎⁎
PPE 2492 0.238 980 0.203 0.034⁎⁎⁎
ROA 2492 0.036 980 0.042 −0.006⁎⁎⁎
EBIT 2492 0.054 980 0.06 −0.006⁎⁎
CASH 2492 0.042 980 0.035 0.007⁎⁎
LEV 2492 0.434 980 0.427 0.007
R&D 2492 0.013 980 0.016 −0.003⁎⁎⁎
SOE 2492 0.378 980 0.31 0.068⁎⁎⁎
TOPFIVESUP 2492 0.381 980 0.384 −0.002
MARKET 2492 0.541 980 0.669 −0.128⁎⁎⁎
TRUST 2492 0.227 980 0.25 −0.024⁎⁎⁎
CEO characteristics
CEOSEX 2492 0.955 980 0.956 −0.001
CEOAGE 2492 3.948 980 3.942 0.006
CEOEDU 2492 0.911 980 0.911 0.000
CEOTEN 2492 3.576 980 3.972 −0.396⁎⁎⁎
GUILD 2492 0.532 980 0.505 0.027⁎⁎⁎
Supplier characteristics
SUPCAP 2492 7.282 980 8.004 −0.722⁎⁎⁎
SUPAGE 2492 2.219 980 2.242 −0.022
6
Table 2
Effect of CEOs' hometown connections on firms' access to trade credit.
Dependent variable (1) (2) (3) (4)
CREDIT
HOMEPUR 0.0505⁎⁎⁎ 0.0173⁎⁎⁎ 0.0170⁎⁎⁎ 0.0236⁎⁎⁎

(8.80) (4.82) (4.73) (5.31)
SIZE −0.0037⁎⁎ −0.0036⁎⁎ −0.0041⁎⁎
(−2.03) (−2.00) (−2.26)
AGE 0.0023 0.0028 −0.0002
(0.20) (0.25) (−0.01)
PPE 0.0282⁎⁎⁎ 0.0277⁎⁎⁎ 0.0261⁎⁎⁎
(3.28) (3.22) (3.03)
ROA 0.1385⁎ 0.1357⁎ 0.1300⁎
(1.87) (1.83) (1.75)
EBIT −0.0962 −0.0928 −0.0872
(−1.42) (−1.37) (−1.29)
CASH 0.0198⁎⁎ 0.0197⁎⁎ 0.0171⁎
(2.07) (2.06) (1.78)
LEV 0.1321⁎⁎⁎ 0.1321⁎⁎⁎ 0.1324⁎⁎⁎
(19.91) (19.89) (19.95)
R&D 0.0838 0.0859 0.0842
(0.98) (1.01) (0.99)
CEOSEX −0.0027 −0.0017
(−0.42) (−0.26)
CEOAGE 0.0033 0.0019
(0.37) (0.22)
CEOEDU −0.0105⁎⁎ −0.0112⁎⁎
(−2.15) (−2.31)
CEOTEN −0.0004 −0.0003
(−1.25) (−1.00)
SUPCAP 0.0002
(0.57)
SUPAGE −0.0030⁎⁎
(−2.08)
TOPFIVESUP −0.0157⁎⁎⁎
(−3.36)
LOCALSUP −0.0001⁎
(−1.69)
FOREIGN 0.0003⁎
(1.87)
FIRM FE N Y Y Y
YEAR FE N Y Y Y
Adj. R2 0.023 0.836 0.836 0.837
N 3472 3472 3472 3472
The dependent variable CREDIT is the ratio of total accounts payable to total assets; the independent variable HOMEPUR is the sum of the shares
purchased from hometown firms among the top five suppliers. Detailed definitions of all variables are reported in Appendix A. The sample is
trimmed at 1% on each continuous variable in each tail. T statistics are reported in parentheses below the coefficients. ⁎, ⁎⁎, and ⁎⁎⁎ represent
significance at the 10%, 5%, and 1% levels, respectively.
Bold indicates the results for the main variables of interest
(2016).3 Firm and year dummies are included in all regression models to control for firm- and year-specific effects. We add additional
variables to Eq. (1), the baseline model, to interact with our key independent variable (HOMEPUR) to investigate how the re-
lationship between trade credit and CEOs' hometown connections is moderated by other factors.
4. Empirical results and analysis
4.1. The effect of CEOs' hometown connections on firms' access to trade credit
We first examine whether CEOs' hometown connections influence firms' access to trade credit and report the baseline regression
results in Table 2.
Column 1 of Table 2 includes only the dependent variable CREDIT and the independent variable HOMEPUR, whereas column 2
adds the control variables at the listed firm level and the listed firm and year dummies. Columns 3 and 4 further add the
3
We also use lagged independent variables in the robustness tests and find that our results are robust. To save space, we do not report the results in
this paper but they are available upon request.
7
characteristics of CEO, supplier, and transaction. The results show that CEOs' hometown connections with suppliers significantly
increase firms' access to trade credit, as the estimated coefficient of HOMEPUR is 0.0505 in column 1 and changes to 0.0236 in
column 4 with the addition of the control variables and fixed effects, remaining statistically significant at the 1% level. These results
indicate that CEOs' hometown connections help firms to access trade credit. In particular, we find that a 1 standard deviation increase
of share purchased from hometown suppliers results in a 0.494% increase of the trade credit ratio (equivalent to about 14.2 million
RMB in trade credit).4 The baseline results support hypothesis 1.
The coefficients of the control variables are consistent with our expectations. For example, the coefficient of SIZE is negative and
significant, which indicates that larger firms receive less trade credit (Ge and Qiu, 2007). The coefficients of fixed assets (PPE) and
profitability (ROA) are both positive and significant, reflecting that greater solvency and lower risk of default are associated with
obtaining more trade credit. The estimated coefficient of financial leverage (LEV) and operation cash (CASH) are both positive and
significant, which is consistent with Wu et al. (2014) and Liu et al. (2016). CEOs who are highly educated (CEOEDU) have more
access to formal financing resources and use less trade credit. The significantly negative relationship between the concentration of
procurement (TOPFIVESUP) and firms' access to trade credit means that the more bargaining power and negotiation advantage
suppliers have, the less trade credit firms can access. The same holds for suppliers' founding years (SUPAGE).
4.2. Cross-sectional tests based on features of China's institutions
In this subsection, we examine China's unique formal institutions (e.g., state ownership and financial marketization) and informal
settings (e.g., merchant guild culture and hometown chambers of commerce) to provide further evidence to support our main
argument about the effect of CEOs' hometown connections on firms' access to trade credit.
4.2.1. Influence of ownership structure

We first investigate the difference in CEOs' hometown connections in state-owned and non-state-owned enterprises. We construct
a new dummy variable NON-SOE, which takes the value of 1 if a firm is not state owned and 0 otherwise. Then, we interact the
variable with HOMEPUR in Eq. (1). The result is shown in column 1 of Table 3. The estimated coefficient of the interaction term
HOMEPUR × NON-SOE is positive and significant at the 1% confidence level, which confirms our expectation that the effect of CEOs'
hometown connections on trade credit is more pronounced in non-state-owned firms, supporting hypothesis 2. In terms of economic
significance, compared to state-owned enterprises, the trade credit for non-state-owned enterprises increases by 0.555% (equivalent
to about 15.9 million RMB trade credit) when the firms' share purchased from hometown suppliers increased by 1 standard deviation.
4.2.2. Influence of regional financial marketization

We next examine the effect of regional financial development on the relationship established in the baseline regression. In
particular, we use the marketization index of financial industry compiled by Fan and Wang (2016) to measure the financial de-
velopment in provinces in which the listed firms are located. The level of financial marketization is lower in provinces in which
financial markets are not well developed and credit rationing is severe. The dummy variable MARKET equals 1 if financial mar-
ketization is higher than the mean value in a specific year and 0 otherwise.
Column 2 of Table 3 reports the estimated result. The coefficient of HOMEPUR × MARKET is negative and statistically significant
at the 1% level, which confirms the arguments of Guiso et al. (2004) and Carlin et al. (2009) that in areas with poor developed
financial systems, informal institutional arrangements (e.g., hometown connections, which act as alternative governance mechan-
isms) play a more important role in accessing external financing. This result supports hypothesis 2. From the perspective of economic
significance, compared to firms located in regions with well-developed financial markets, listed firms located in regions with poorly
developed financial markets receive 15.3 million RMB more trade credit (equivalent to a 0.532% increase of the trade credit ratio)
with a 1 standard deviation increase of share purchased from hometown suppliers.
4.2.3. Influence of the merchant guild culture

The merchant guild was widespread in China's Ming and Qing dynasties as well as medieval European countries, and is regarded
as the beginning of contemporary enterprise (Du et al., 2017). There are 10 well-known merchant guilds in the Ming and Qing
dynasties (1368–1911), namely, Jin, Hui, Yue, Min, Yong, Longyou, Dongting, Lu, Jiangyou, and Shan5 (Du et al., 2017). We con-
struct a dummy GUILD, which equals 1 if CEOs' hometowns are located in the districts of these guilds, and add the intersection of
GUILD and HOMEPUR into the baseline regression.
The positive sign for the coefficient of HOMEPUR × GUILD shown in column 3 of Table 3 supports hypothesis 3, indicating that
the stronger the merchant guild culture in the CEO's hometown, the more trade credit is accessed by firms through CEOs' hometown
connections. Specifically, firms with CEOs from hometowns with a merchant guild culture have 15 million RMB more trade credit
(0.524% of the trade credit ratio) than do firms whose CEOs' hometowns do not have a merchant guild culture when there is a 1
4
The coefficient of HOMEPUR is 0.0236 (column 4 of Table 2). Table 4 shows that the standard deviation for HOMEPUR is 0.2094 in Table 1.
Hence, a 1 standard deviation increase in share purchased from hometown suppliers yields a 0.494% increase in the trade credit ratio. As the mean
value of total assets is 2867 million RMB (=e^(21.7767)), a 1 standard deviation increase in HOMEPUR leads to 14.2 million RMB more trade credit
(=2867⁎0.494%).
5
They are 晋, 徽, 粤, 闽, 涌, 龙游, 洞庭, 鲁, 江右, and 陕 in Chinese, respectively.
8
Table 3
Effect of China's unique institutional settings on hometown connections–trade credit relationship.
CREDIT
HOMEPUR 0.0078 0.0407⁎⁎⁎ 0.0061 0.0195⁎⁎⁎

(1.25) (5.81) (0.80) (4.13)
HOMEPUR × NON-SOE 0.0265⁎⁎⁎
(3.66)
MARKET 0.0248
(0.89)
HOMEPUR × MARKET −0.0254⁎⁎⁎
(−3.14)
GUILD −0.0094⁎⁎⁎
(−3.29)
HOMEPUR × GUILD 0.0250⁎⁎⁎
(2.88)
CHAMBER 0.0001
(0.05)
HOMEPUR × CHAMBER 0.0191⁎⁎⁎
(2.65)
SIZE −0.0039⁎⁎ −0.0044⁎⁎ −0.0040⁎⁎ −0.0039⁎⁎
(−2.16) (−2.39) (−2.18) (−2.14)
AGE −0.0002 0.0016 −0.0020 −0.0011
(−0.02) (0.14) (−0.17) (−0.10)
PPE 0.0262⁎⁎⁎ 0.0267⁎⁎⁎ 0.0275⁎⁎⁎ 0.0256⁎⁎⁎
(3.06) (3.11) (3.21) (2.99)
ROA 0.1288⁎ 0.1276⁎ 0.1362⁎ 0.1216
(1.74) (1.72) (1.84) (1.64)
EBIT −0.0865 −0.0840 −0.0925 −0.0797
(−1.28) (−1.24) (−1.37) (−1.18)
CASH 0.0175⁎ 0.0168⁎ 0.0177⁎ 0.0165⁎
(1.83) (1.75) (1.85) (1.72)
LEV 0.1323⁎⁎⁎ 0.1320⁎⁎⁎ 0.1310⁎⁎⁎ 0.1314⁎⁎⁎
(19.99) (19.92) (19.74) (19.81)
R&D 0.0799 0.0806 0.0910 0.0811
(0.94) (0.95) (1.07) (0.95)
CEOSEX −0.0018 −0.0001 −0.0019 −0.0014
(−0.29) (−0.02) (−0.29) (−0.21)
CEOAGE 0.0021 0.0036 0.0041 0.0016
(0.23) (0.41) (0.46) (0.18)
CEOEDU −0.0108⁎⁎ −0.0113⁎⁎ −0.0113⁎⁎ −0.0112⁎⁎
(−2.23) (−2.33) (−2.33) (−2.30)
CEOTEN −0.0003 −0.0004 −0.0004 −0.0003
(−0.89) (−1.13) (−1.21) (−0.83)
SUPCAP 0.0002 0.0002 0.0002 0.0002
(0.64) (0.61) (0.75) (0.56)
SUPAGE −0.0031⁎⁎ −0.0030⁎⁎ −0.0031⁎⁎ −0.0030⁎⁎
(−2.14) (−2.03) (−2.15) (−2.06)
TOPFIVESUP −0.0147⁎⁎⁎ −0.0167⁎⁎⁎ −0.0129⁎⁎⁎ −0.0158⁎⁎⁎
(−3.15) (−3.57) (−2.72) (−3.40)
LOCALSUP −0.0001 −0.0001 −0.0001⁎⁎ −0.0001
(−1.56) (−1.12) (−2.17) (−1.39)
FOREIGN 0.0003⁎ 0.0003⁎ 0.0002 0.0003⁎
(1.87) (1.94) (1.56) (1.89)
FIRM FE Y Y Y Y
YEAR FE Y Y Y Y
Adj. R2 0.838 0.838 0.838 0.838
N 3472 3472 3472 3472
purchased from hometown firms among the top five suppliers; the dummy NON-SOE equals 1 if the listed firm is privately owned; the dummy
MARKET equals 1 if the degree of financial marketization is higher than the mean value; the dummy GUILD equals 1 if the CEO's hometown province
is among the top 10 merchant guilds in the Ming and Qing dynasties; and the dummy CHAMBER equals 1 if the CEO holds a position in the
hometown chamber of commerce. Detailed definitions of all variables are reported in Appendix A.
9
standard deviation increase of share purchased from hometown suppliers.
4.2.4. Influence of professional connections

We manually collect the data of CEOs' positions in hometown chambers of commerce (including branches where the listed firms
are located). The dummy CHAMBER equals 1 if the CEO holds a director position in the hometown chamber of commerce and 0
otherwise. An intersection item of CHAMBER and HOMEPUR is added to Eq. (1).
The results in column 4 of Table 3 show that the estimated coefficient of HOMEPUR × CHAMBER is positive and statistically
significant at the 1% level. This suggests that CEOs' positions in hometown chambers of commerce strengthen the effect of their
hometown connections on firms' access to trade credit, which supports hypothesis 3. In terms of economic significance, firms whose
CEOs hold a position in the chamber of commerce obtain 0.4% more trade credit ratio (equivalent to about 11.5 million RMB) than do
firms whose CEOs without a position in the hometown chamber of commerce when firms increase share purchased from hometown
suppliers by 1 standard deviation.
4.3. Potential channels
Thus far, we have presented evidence that CEOs' hometown connections play an important role in helping firms to access trade
credit. We argue that the hometown connections work by mitigating information asymmetry and building trust, thereby reducing the
credit risk faced by hometown suppliers. In this subsection, we provide more direct evidence to support this argument.
4.3.1. Information opacity

Following our discussion in Section 2, we investigate the effect of CEOs' hometown connections on trade credit in firms with
varying levels of information opacity. Referring to Hutton et al. (2009), we use the sum of the absolute values of accrued earnings
management for the previous 3 years to calculate the information opacity of listed firms. The dummy OPAQUE equals 1 if information
opacity is higher than the mean value and 0 otherwise.
The results, reported in column 1 of Table 4, show that the coefficient of HOMEPUR × OPAQUE is positive and statistically
significant at the 5% level, which indicates that CEOs' hometown connections are more important for firms with high information
opacity; that is, high information opacity increases the effect of CEOs' hometown connections on firms' access to trade credit.
4.3.2. Social trust

We next investigate how the relationship between CEOs' hometown connections and firms' access to trade credit is influenced by
social trust in the listed firm province. We use results from the 2013 China General Social Survey, jointly conducted by the Hong Kong
University of Science and Technology and the People's University of China, as a measure of regional social trust to interact with our
key variable of CEOs' hometown connections. This measure is widely used in studies in the Chinese setting, such as Wu et al. (2014).
The dummy TRUST equals 1 if the score for trust is higher than the mean value and 0 otherwise.
The estimated results, reported in column 2 of Table 4, show that the coefficient of the interaction term HOMEPUR × TRUST is
negative and statistically significant at the 5% level, which indicates a substitution effect of CEOs' hometown connections and social
trust in the listed firm province. The result suggests that CEOs' hometown connections play a more important role when social trust in
the listed firm province is weak.
Overall, we find direct evidence that mitigating information asymmetry and building trust are two potential channels through
which CEOs' hometown connections help firms to access trade credit.
4.4. Endogeneity
It is possible that CEOs' hometown connections with suppliers are not exogenous, which means that our results may be influenced
by potential endogeneity, especially from omitted variables. For example, it is possible that CEOs' hometown connections and their
impact on trade credit may also be driven by economic growth, the industrial characteristics of CEOs' hometowns, or other un-
observed variables.
In this subsection, we address the endogeneity issues using various approaches. We first control the fixed effects at different
dimensions and use the 2SLS model with instrumental variables to investigate omitted variables. Then, we build a PSM-DID model
using the settings of CEO turnover as a supplementary analysis. Finally, to identify the supply role of trade credit, we compare the
effect of hometown connections on trade credit during and after crises.
4.4.1. Fixed effects at different dimensions

One concern about our conclusion is that firms with and without hometown connections vary in CEOs' hometown-specific
characteristics, which means that our findings may be due to these different specific characteristics rather than hometown con-
nections. Therefore, we control the fixed effects at the level of CEOs' hometown province as well as the interaction term between
CEOs' hometown province and year dummy. The results are reported in columns 1 and 2 of Table 5. The positive and statistically
significant coefficients of HOMEPUR, which are consistent with the baseline results, support our hypothesis.
Meanwhile, the industrial characteristics embedded in the economic development of CEOs' hometown provinces also may de-
termine the connections between the listed firms and CEOs' hometown suppliers. To address the variance of different industries'
development stages in CEOs' hometown province, we add the fixed effects of CEO's hometown province × year × listed firm industry
10
Table 4
Results of mechanism tests.
Dependent variable (1) (2)
CREDIT
HOMEPUR 0.0152⁎⁎ 0.0286⁎⁎⁎

(2.56) (5.79)
OPAQUE 0.0009
(0.48)
HOMEPUR × OPAQUE 0.0135⁎⁎
(2.09)
TRUST 0.0138
(0.35)
HOMEPUR × TRUST −0.0193⁎⁎
(−2.32)
SIZE −0.0043⁎⁎ −0.0042⁎⁎
(−2.33) (−2.27)
AGE 0.0028 0.0001
(0.25) (0.01)
PPE 0.0271⁎⁎⁎ 0.0263⁎⁎⁎
(3.16) (3.06)
ROA 0.1262⁎ 0.1323⁎
(1.71) (1.79)
EBIT −0.0853 −0.0886
(−1.26) (−1.31)
CASH 0.0174⁎ 0.0168⁎
(1.82) (1.75)
LEV 0.1323⁎⁎⁎ 0.1318⁎⁎⁎
(19.92) (19.84)
R&D 0.0866 0.0884
(1.02) (1.04)
CEOSEX −0.0011 −0.0009
(−0.17) (−0.14)
CEOAGE 0.0033 0.0029
(0.37) (0.32)
CEOEDU −0.0108⁎⁎ −0.0111⁎⁎
(−2.23) (−2.27)
CEOTEN −0.0003 −0.0003
(−1.04) (−0.94)
SUPCAP 0.0002 0.0002
(0.61) (0.53)
SUPAGE −0.0030⁎⁎ −0.0030⁎⁎
(−2.04) (−2.04)
TOPFIVESUP −0.0155⁎⁎⁎ −0.0155⁎⁎⁎
(−3.33) (−3.31)
LOCALSUP −0.0001⁎ −0.0001⁎
(−1.75) (−1.79)
FOREIGN 0.0003⁎ 0.0003⁎
(1.92) (1.83)
FIRM FE Y Y
YEAR FE Y Y
Adj. R2 0.838 0.837
N 3472 3472
The dependent variable CREDIT is the ratio of total accounts payable to total assets; the independent
variable HOMEPUR is the sum of the shares purchased from hometown firms among the top five
suppliers; the dummy OPAQUE equals 1 if the information opacity of the listed firm is higher than the
mean value; and the dummy TRUST equals 1 if the trust index of the province where the listed firms
are located is higher than the mean value. Detailed definitions of all variables are reported in
Appendix A.
(CEOPROV × YEAR × INDUS) into the baseline regression. As shown in column 3 of Table 5, the result still holds.
4.4.2. 2SLS model with instrumental variables

To further address the endogeneity issue, we conduct two-stage instrumental variable estimation. There are two instrumental
variables used in our study: rice acreage in 1978 and number of dialects, which are both for the listed firm province. The underlying
logic of these two instrumental variables is that, when the social trust in the listed firm province is weak, CEOs are more likely to find
trustworthy suppliers in their hometown provinces by establishing connections with suppliers in their hometowns. First, a history of
11
Table 5
Fixed effects of different dimensions added to the baseline regression.
Dependent variable (1) (2) (3)
CREDIT
HOMEPUR 0.0245⁎⁎⁎ 0.0253⁎⁎⁎ 0.0285⁎⁎⁎

(5.48) (5.43) (3.30)
SIZE −0.0049⁎⁎⁎ −0.0060⁎⁎⁎ 0.0007
(−2.67) (−3.01) (0.15)
AGE −0.0027 −0.0030 0.0057
(−0.24) (−0.25) (0.23)
PPE 0.0296⁎⁎⁎ 0.0204⁎⁎ 0.0215
(3.42) (2.17) (1.09)
ROA 0.1221 0.0871 −0.2981⁎
(1.64) (1.12) (−1.82)
EBIT −0.0786 −0.0556 0.3440⁎⁎
(−1.15) (−0.78) (2.25)
CASH 0.0182⁎ 0.0233⁎⁎ 0.0170
(1.89) (2.31) (0.93)
LEV 0.1328⁎⁎⁎ 0.1320⁎⁎⁎ 0.1001⁎⁎⁎
(19.91) (18.74) (7.22)
R&D 0.0802 0.1819⁎⁎ 0.2195
(0.94) (2.01) (1.25)
CEOSEX 0.0029 0.0021 0.0000
(0.44) (0.31) (.)
CEOAGE 0.0042 0.0025 −0.0362⁎
(0.46) (0.27) (−1.84)
CEOEDU −0.0120⁎⁎ −0.0114⁎⁎ −0.0140
(−2.46) (−2.23) (−1.37)
CEOTEN −0.0003 −0.0002 −0.0003
(−0.96) (−0.66) (−0.43)
SUPCAP 0.0004 0.0003 −0.0005
(1.28) (0.93) (−0.80)
SUPAGE −0.0029⁎⁎ −0.0028⁎ −0.0065⁎⁎
(−1.96) (−1.85) (−2.25)
TOPFIVESUP −0.0135⁎⁎⁎ −0.0097⁎ −0.0059
(−2.88) (−1.95) (−0.62)
LOCALSUP −0.0001⁎ −0.0001⁎ −0.0002
(−1.77) (−1.76) (−1.37)
FOREIGN 0.0003⁎ 0.0003⁎ −0.0002
(1.80) (1.69) (−0.51)
FIRM FE Y Y Y
YEAR FE Y Y Y
CEOPROV FE Y N N
CEOPROV × YEAR FE N Y N
CEOPROV × YEAR × INDUS FE N N Y
Adj. R2 0.840 0.843 0.862
N 3472 3472 3472
The dependent variable CREDIT is the ratio of total accounts payable to total assets; and the independent variable HOMEPUR is the sum of the
shares purchased from hometown firms among the top five suppliers. Columns 1–3 add the fixed effects of CEOs' hometown province, CEOs'
hometown province × Year, and CEOs' hometown province × listed firms' industry × Year, respectively. Detailed definitions of all variables are
reported in Appendix A.
farming rice makes cultures more interdependent (Talhelm et al., 2014) owing to the cooperation required to build a rice irrigation
system, thereby generating a higher level of social trust. Therefore, if rice acreage is lower in the listed firm province, firms tend to
find suppliers in their CEO's hometown provinces. Second, a large number of dialects in the listed firm province decreases the level of
trust, because people prefer to trust those who speak the same dialect (Tajfel, 1982). The reason why we use the measurements of
social trust in the listed firm province, instead of CEO hometown province, is that the trade credit granted by hometown suppliers is
directly related to the interpersonal trust in CEOs' hometown, which is one of the channels in our hypothesis. Furthermore, as for the
exclusion restriction condition of instrumental variables, rice acreage in 1978 consists of historical data while the number of dialects
is also shaped by history, and thus, neither directly affected firms' access to trade credit during our sample period from 2007 to 2016.
We create the following two instrumental variables: RICE is the per capita rice acreage in 1978 for each listed firm province
(Talhelm et al., 2014); DIANUM is the number of the dialects, which is collected from the Chinese Language Atlas: Chinese Direct
Volume (Chinese Academy of Social Sciences, 2012), divided by the population for the listed firm province.
We first add the two instrumental variables into the regression separately. The first-stage regression results are reported in
columns 1 and 3 of Table 6. The negative coefficient of RICE in column 1 means that more cooperation in farming creates a higher
12
Table 6
IV regression results.
Variable (1) (2) (3) (4) (5) (6)
IV1: RICE IV2: DIANUM IV 1&2
HOMEPUR CREDIT HOMEPUR CREDIT HOMEPUR CREDIT
⁎⁎ ⁎⁎⁎
RICE −0.2742 −0.2051
(−2.58) (−5.60)
⁎⁎⁎
DIANUM 2.7093 1.5995⁎⁎⁎
(3.01) (4.90)
HOMEPUR 0.1503⁎⁎⁎ 0.0803⁎⁎⁎ 0.1232⁎⁎⁎
(2.88) (3.14) (5.98)
SIZE −0.0299⁎⁎ −0.0005 −0.0292⁎⁎ −0.0024 −0.0295⁎⁎ −0.0013
(−2.47) (−0.15) (−2.41) (−0.67) (−2.43) (−0.38)
AGE 0.0596 −0.0065 0.0582 −0.0057 0.0601 −0.0048
(0.84) (−0.33) (0.82) (−0.32) (0.85) (−0.26)
PPE 0.0786 0.0235⁎ 0.0743 0.0240⁎ 0.0773 0.0256⁎
(1.55) (1.69) (1.47) (1.68) (1.52) (1.89)
ROA 0.6994⁎⁎ 0.0193 0.6946⁎⁎ 0.0793 0.6921⁎⁎ 0.0380
(2.05) (0.21) (2.05) (0.96) (2.03) (0.45)
EBIT −0.5717⁎ −0.0072 −0.5630⁎ −0.0497 −0.5658⁎ −0.0226
(−1.87) (−0.08) (−1.85) (−0.63) (−1.85) (−0.28)
CASH 0.0342 0.0178 0.0340 0.0176 0.0348 0.0187
(0.70) (1.33) (0.70) (1.38) (0.71) (1.45)
LEV 0.0178 0.1250⁎⁎⁎ 0.0200 0.1313⁎⁎⁎ 0.0173 0.1254⁎⁎⁎
(0.51) (10.24) (0.57) (10.48) (0.50) (10.42)
R&D 0.2676 0.1027 0.2292 0.0738 0.2640 0.1099
(0.56) (0.67) (0.48) (0.53) (0.55) (0.75)
CEOSEX −0.0327 0.0035 −0.0336 0.0003 −0.0328 0.0026
(−0.44) (0.27) (−0.45) (0.03) (−0.44) (0.22)
CEOAGE −0.0496 0.0114 −0.0577 0.0051 −0.0520 0.0100
(−1.04) (0.87) (−1.20) (0.44) (−1.08) (0.82)
CEOEDU −0.0030 −0.0049 −0.0156 −0.0105 −0.0052 −0.0050
(−0.12) (−0.84) (−0.63) (−1.50) (−0.21) (−0.91)
CEOTEN −0.0060⁎⁎⁎ 0.0004 −0.0059⁎⁎⁎ 0.0000 −0.0059⁎⁎⁎ 0.0003
(−3.32) (0.80) (−3.25) (0.09) (−3.31) (0.60)
SUPCAP 0.0002 0.0002 0.0001 0.0002 0.0001 0.0002
(0.12) (0.48) (0.06) (0.59) (0.09) (0.53)
SUPAGE −0.0082 −0.0021 −0.0087 −0.0030 −0.0083 −0.0023
(−1.04) (−0.94) (−1.11) (−1.52) (−1.05) (−1.12)
TOPFIVESUP 0.1937⁎⁎⁎ −0.0431⁎⁎⁎ 0.1948⁎⁎⁎ −0.0269⁎⁎⁎ 0.1932⁎⁎⁎ −0.0378⁎⁎⁎
(5.94) (−3.22) (5.97) (−3.02) (5.92) (−4.14)
LOCALSUP 0.0083⁎⁎⁎ −0.0012⁎⁎⁎ 0.0083⁎⁎⁎ −0.0006⁎⁎⁎ 0.0083⁎⁎⁎ −0.0009⁎⁎⁎
(17.78) (−2.63) (17.81) (−2.65) (17.78) (−5.01)
FOREIGN −0.0032⁎⁎⁎ 0.0006⁎⁎ −0.0032⁎⁎⁎ 0.0005⁎⁎ −0.0033⁎⁎⁎ 0.0005⁎⁎⁎
(−3.82) (2.54) (−3.83) (2.57) (−3.84) (3.08)
FIRM FE Y Y Y Y Y Y
YEAR FE Y Y Y Y Y Y
N 3472 3472 3472 3472 3472 3472
Weak IV F Stat. 25.78 25.92 129.97
Sargan's P 0.3799
purchased from hometown firms among the top five suppliers; the instrumental variable RICE is the per capita rice planting area of the listed firms'
province of location in 1978; and the variable DIANUM is the number of dialects in the listed firms' province of location divided by the population.
Detailed definitions of all variables are reported in Appendix A.
level of trust within the listed firm province, thereby reducing trade between listed firms and hometown suppliers. The coefficient of
DIANUM in column 3 is statistically significantly positive, suggesting that more dialects decrease social trust in the listed firm
province and encourage CEOs to purchase more from hometown suppliers. The second-stage regression results, reported in columns 2
and 4 of Table 6, further confirm that our baseline results hold when we address potential endogeneity using the two-stage approach.
In columns 5 and 6 of Table 6, we add both instrumental variables in the regression and find that the results are robust.
In fact, finding a truly exogenous variable that is also correlated with the independent variable is a difficult task. As it is im-
possible to empirically test the exclusion restriction condition, we qualitatively judge the effectiveness of our IVs with the method
recommended by Larcker and Rusticus (2010). According to their study, the correlation between an independent variable and IV are
the critical determinants of whether IV estimators are preferred to OLS estimators.6 The Rxz2 for the first stage in column 5 is 0.7265,
which means that the correlation between IV and residual (Rzu2) can be no > 72.65% of the correlation between independent
13
variable and residual (Rxu2) for the IV estimation results to be statistically preferred to the OLS results. Since the reason to tackle the
endogeneity issue is that there is severe correlation between independent variable and residual (meaning high value of Rxu2), a value
of 0.7265 might ensure to obtain better IV estimators.
4.4.3. PSM-DID model with settings of CEO turnover

Since our measurement of the connection between listed firms and suppliers is based on CEOs' hometowns, the turnover of CEOs
naturally changes the connections, which provide an ideal setting to deal with the endogeneity issues.7 CEO turnover may have two
opposite influences on hometown connections: a new CEO may weaken or break connections established by the former CEO; and a
new CEO may bring a brand-new hometown connection. We distinguish these two situations when testing the effects of CEO
turnover.
We first identify firms that experienced a CEO change in our sample, keeping those whose hometown connections changed after
the CEO changed and separating them into two categories. For the first category, there is no hometown connection before the CEO
changed, which means the share purchased from hometown suppliers is 0 (HOMECON = 0 and HOMEPUR = 0). However,
hometown connections emerged after the new CEO took over (HOMECON = 1 and HOMEPUR > 0). For the second category,
hometown connections were broken after the CEO changed. These two categories are regarded as the treated groups in their re-
spective regressions and a dummy TREAT taking the value of 1 is assigned to them. The other new dummy POST equals 1 for
observations after the CEO changed and 0 for ones before the CEO changed. Using the propensity score matching method, we provide
one controlled sample without changed connections to each treated observation, matched from the same industry as well as the same
year with the control variables of the baseline regression.
We construct difference-in-difference models using each category and their matched control group. We are interested in the
coefficient of the intersection term TREAT × POST. As shown in Table 7, the coefficient for the regression with hometown con-
nections that emerged after the CEO changed is statistically significantly positive, while that for the regression with connections that
were broken after the CEO changed is statistically significantly negative. These results support our expectation that new hometown
connections bring more trade credit to listed firms while a break in hometown connections reduces their access to credit. However,
the results should be taken cautiously because the samples we used are not continuous due to the disclosure issue we discussed in the
part of sample selection.8
4.4.4. Identification of the supply role of trade credit

Since the observed trade credit obtained by the firms demonstrates an equilibrium generated between the listed firms and their
suppliers, a positive relationship between CEOs' hometown connections and firms' access to trade credit might not sufficiently support
our argument that CEOs help their firms to access trade credit by their connections with suppliers. To address this issue by focusing
on the supply side of trade credit, we analyze the situation in which customers face tight financial constraints during financial crises,
following the design of Love et al. (2010). Specifically, we compare the difference of the relationship between CEOs' hometown
connections with firms' access to trade credit during and after crises.
Two scenarios with financial constraint are adopted: the GFC and industry crises. We create two dummy variables to capture their
influences. First, a dummy FINCRISIS to measure the GFC equals 1 if sample observations are from the years 2008 or 2009 and 0 for
sample observations for 2010 and 2011, following Liu et al. (2016). Second, a dummy INDCRISIS to measure the industry crises
equals 1 if the median annual revenue growth rate of the industry is < 0 or the median annual stock yield is less than −20% and 0
otherwise (Yonker, 2017). Then, we add these two dummy variables into our baseline regression model and interact them with CEOs'
hometown connections.
The results in Table 8 show that the coefficients of the two interaction terms HOMEPUR × FINCRISIS and HOMEPUR × INDC-
RISIS are both positive and statistically significant, which indicates that the effect of hometown connections on trade credit is
strengthened when the listed firms experience financial constraints and have greater demand for trade credit. The results support our
expectation that hometown suppliers grant more trade credit to listed firms when the firms experience more severe financial con-
straints.
4.5. Robustness tests
In this subsection, we use alternative measures of our dependent and independent variables, change our sample range, and use
supplier-level data to ensure the robustness of our conclusion.
4.5.1. Alternative measures of dependent and independent variables

Instead of the continuous variable HOMEPUR, we use a dummy HOMECON to directly measure whether there is at least one firm
6
The conclusion of their study is that once Rzu2 < Rxz2Rxu2, the IV estimators are preferred to OLS estimators even if the IV is “semi-exogenous”.
While it is impossible to calculate the Rzu2 and Rxu2 because the real residual is unknown (we only have the estimated residual), we can only do a
qualitative analysis to evaluate the effectiveness of IV.
7
We appreciate an anonymous reviewer's suggestion for addressing the endogeneity issues using this setting.
8
We exclude observations with suppliers whose names are undisclosed or disclosed in ambiguous abbreviations, as well as observations with CEOs
whose hometown provinces are not identified.
14
Table 7
PSM-DID results using the settings of CEO turnover.
Dependent variable: CREDIT (1) (2)
Hometown connections emerged after CEO changed Hometown connections broken after CEO changed
POST −0.0220⁎ 0.0114

(−1.81) (1.36)
TREAT × POST 0.0396⁎⁎⁎ −0.0281⁎⁎⁎
(2.67) (−2.64)
SIZE −0.0008 −0.0030
(−0.11) (−0.47)
AGE 0.0746 0.1038⁎⁎⁎
(1.58) (2.82)
PPE −0.0323 0.0723⁎⁎
(−0.97) (2.09)
ROA 0.4077 0.6830⁎
(1.64) (1.94)
EBIT −0.3980⁎ −0.5865⁎
(−1.77) (−1.83)
CASH 0.0258 0.0268
(0.69) (0.71)
LEV 0.1609⁎⁎⁎ 0.1933⁎⁎⁎
(6.67) (6.92)
R&D 0.2398 −0.1633
(0.49) (−0.75)
CEOSEX 0.0257 0.0033
(0.96) (0.20)
CEOAGE −0.0006 −0.0024⁎⁎⁎
(−1.03) (−3.73)
CEOEDU 0.0189 0.0142
(0.64) (0.86)
CEOTEN −0.0012 0.0014
(−1.08) (1.24)
SUPCAP 0.0003 0.0004
(0.33) (0.46)
SUPAGE −0.0081 −0.0006
(−1.41) (−0.12)
TOPFIVESUP −0.0329⁎⁎ −0.0199
(−2.09) (−1.26)
LOCALSUP −0.0001 0.0000
(−0.43) (0.29)
FOREIGN −0.0001 0.0010⁎
(−0.10) (1.69)
FIRM FE Y Y
YEAR FE Y Y
Adj. R2 0.823 0.849
N 428 458
purchased from hometown firms among the top five suppliers; TREAT is the group variable that takes a value of 1 if treated (CEO changed) and 0 for
matched control samples; and POST is a dummy variable that takes the value 1 for observed years after CEO turnover. Detailed definitions of all
variables are reported in Appendix A.
from the CEO's hometown province listed as one of the top five suppliers. We test the robustness of our conclusion with this dummy
variable and report the result in column 1 of Table 9.
As for the dependent variable, there are three other measures frequently used in the existing literature. We construct three new
variables for the robustness tests: (1) L_CREDIT equals the total accounts payables divided by total liabilities (Fisman and Love, 2003);
(2) NET_CREDIT equals the net amount of accounts payable and receivable divided by total assets (Liu et al., 2016); and (3) FIN_-
CREDIT focuses on the financing of trade credit and equals accounts payable with terms > 1 year divided by total assets (Ge and Qiu,
2007). The results are shown in columns 2–4 of Table 9.
All coefficients of HOMECON and HOMEPUR in Table 9 are statistically significantly positive when the alternative measures are
used, which confirms the robustness of our conclusion.
4.5.2. Exclude firms hiring local CEOs

Our findings may be affected by geographical distance, especially when a relationship can be built simply owing to the con-
venience of communication. To exclude this alternative explanation, we include the shares purchased from suppliers registered in the
listed firm province (LOCALSUP) in all the proceeding tests.
15
Table 8
Effect of crises on the relationship between hometown connections and trade credit.
Dependent variable: CREDIT (1) (2)
Global financial crisis Industrial crisis
HOMEPUR 0.0173 0.0198⁎⁎⁎

(1.18) (4.25)
HOMEPUR × FINCRISIS 0.0389⁎⁎
(2.50)
INDCRISIS 0.0008
(0.36)
HOMEPUR × INDCRISIS 0.0192⁎⁎⁎
(2.73)
SIZE −0.0051 −0.0039⁎⁎
(−0.81) (−2.13)
AGE 0.0743⁎⁎⁎ 0.0001
(2.87) (0.01)
PPE −0.0006 0.0263⁎⁎⁎
(−0.02) (3.06)
ROA 0.2180 0.1334⁎
(0.88) (1.80)
EBIT −0.1938 −0.0898
(−0.85) (−1.33)
CASH 0.0387 0.0171⁎
(1.56) (1.79)
LEV 0.1476⁎⁎⁎ 0.1327⁎⁎⁎
(7.57) (20.03)
R&D −0.0301 0.0811
(−0.15) (0.95)
CEOSEX 0.0356 −0.0021
(1.49) (−0.33)
CEOAGE 0.0819⁎⁎ 0.0009
(2.26) (0.11)
CEOEDU −0.0197 −0.0112⁎⁎
(−0.88) (−2.30)
CEOTEN −0.0018 −0.0003
(−1.20) (−0.99)
SUPCAP −0.0002 0.0002
(−0.21) (0.57)
SUPAGE −0.0026 −0.0027⁎
(−0.56) (−1.86)
TOPFIVESUP 0.0112 −0.0156⁎⁎⁎
(0.72) (−3.35)
LOCALSUP −0.0004⁎ −0.0001⁎
(−1.86) (−1.69)
FOREIGN 0.0001 0.0003⁎
(0.15) (1.86)
FIRM FE Y Y
YEAR FE Y Y
Adj. R2 0.842 0.838
N 624a 3472
Note: This table identifies the supply role of hometown connections. The dependent variable CREDIT is the ratio of
total accounts payable to total assets; the key independent variable HOMEPUR is the sum of the shares purchased from
hometown firms among the top five suppliers; the dummy FINCRISIS equals 1 for samples in the years 2008 and 2009
and 0 for samples in the years 2010 and 2011; and the dummy INDCRISIS equals 1 if the median annual revenue
growth rate of the industry is < 0 or the median annual stock yield is less than −20%. Detailed definitions of all
variables are reported in Appendix A.
a
Only samples from the years 2008 to 2011 are included in the regression of column 1 of this table. We compare
the relationship between hometown connection and trade credit during the GFC period (2008 and 2009) and the post-
GFC period (2010 and 2011).
To address this issue, we exclude the samples hiring local CEOs. It is much easier for firms whose CEOs are born in the same
location to access trade credit from hometown suppliers (in this case, hometown suppliers are also the local suppliers), owing to the
close geographical proximity and/or CEOs' connection with suppliers. Therefore, the results using the samples hiring non-local CEOs
may provide stronger evidence for the effect of CEOs' hometown connections, even if there is selection bias when excluding the firms
hiring local CEOs.
Columns 1 and 2 in Table 10 illustrate the regression results for sample firms with non-local CEOs. Different measurements of
16
Table 9
Results for other metrics for the dependent and independent variables.
CREDIT L_CREDIT NET_CREDIT FIN_CREDIT
HOMECON 0.0054⁎⁎⁎
(2.72)
HOMEPUR 0.0549⁎⁎⁎ 0.0129⁎⁎ 0.0071⁎⁎⁎
(4.35) (2.14) (3.84)
SIZE −0.0047⁎⁎ −0.0205⁎⁎⁎ 0.0147⁎⁎⁎ −0.0013⁎
(−2.56) (−3.95) (5.93) (−1.65)
AGE 0.0018 −0.0777⁎⁎ −0.0056 0.0087⁎
(0.16) (−2.42) (−0.37) (1.84)
PPE 0.0276⁎⁎⁎ 0.0465⁎ 0.0422⁎⁎⁎ 0.0105⁎⁎⁎
(3.20) (1.91) (3.62) (2.92)
ROA 0.1388⁎ 0.7417⁎⁎⁎ 0.3567⁎⁎⁎ −0.0120
(1.87) (3.53) (3.55) (−0.39)
EBIT −0.0930 −0.6711⁎⁎⁎ −0.4281⁎⁎⁎ 0.0118
(−1.37) (−3.49) (−4.66) (0.42)
CASH 0.0179⁎ −0.0185 0.1312⁎⁎⁎ 0.0003
(1.86) (−0.68) (10.08) (0.07)
LEV 0.1334⁎⁎⁎ −0.2575⁎⁎⁎ 0.0652⁎⁎⁎ 0.0124⁎⁎⁎
(20.00) (−13.69) (7.24) (4.48)
R&D 0.0962 −0.1349 −0.4269⁎⁎⁎ −0.0240
(1.12) (−0.56) (−3.70) (−0.67)
CEOSEX −0.0018 0.0028 0.0077 0.0153⁎⁎⁎
(−0.28) (0.15) (0.87) (5.65)
CEOAGE 0.0011 0.0163 −0.0033 −0.0027
(0.12) (0.65) (−0.27) (−0.72)
CEOEDU −0.0121⁎⁎ −0.0172 −0.0136⁎⁎ 0.0011
(−2.46) (−1.25) (−2.06) (0.56)
CEOTEN −0.0004 −0.0004 0.0002 −0.0000
(−1.23) (−0.47) (0.46) (−0.33)
SUPCAP 0.0003 0.0001 −0.0003 −0.0001
(0.98) (0.08) (−0.73) (−0.56)
SUPAGE −0.0031⁎⁎ −0.0006 −0.0025 0.0003
(−2.13) (−0.15) (−1.26) (0.57)
TOPFIVESUP −0.0109⁎⁎ −0.0169 0.0030 0.0013
(−2.36) (−1.28) (0.48) (0.68)
LOCALSUP 0.0001 −0.0003⁎ −0.0001 −0.0001⁎⁎
(1.43) (−1.85) (−0.90) (−2.27)
FOREIGN 0.0002 0.0009⁎⁎ 0.0001 −0.0000
(1.51) (2.03) (0.33) (−0.46)
FIRM FE Y Y Y Y
YEAR FE Y Y Y Y
Adj. R2 0.836 0.785 0.835 0.586
N 3472 3472 3472 3472
The variables CREDIT and L_CREDIT are the ratios of total accounts payable over total assets and total liabilities respectively; the variable
NET_CREDIT measures the net amount of accounts payable and receivable to total assets; and the variable FIN_CREDIT is the accounts payable with
terms > 1 year over total assets. The independent variable HOMEPUR is the sum of the shares purchased from hometown firms among the top five
suppliers; and the other independent variable HOMECON is a dummy variable that equals 1 if any suppliers are registered in the CEO's hometown
province. Detailed definitions of all variables are reported in Appendix A.
hometown connections are adopted separately. The positive effect of CEOs' hometown connections on firms' access to trade credit still
holds.
4.5.3. Using supplier-level data

While it would be better to use the data at the supplier level to verify our argument, listed firms are not required to disclose and, in
most cases, do not disclose information about the name of a supplier of specific trade credit. However, the five largest counterparties
of accounts payable provide an opportunity to test the robustness of our hypothesis. It should be noted that the top five suppliers are
ranked according to the firms' purchased amount during the fiscal year, but they are not necessarily the five largest counterparties of
accounts payable.
We construct a new dummy TOPFIVEAP, which takes the value of 1 if a supplier from the top five suppliers is one of the five
largest counterparties of accounts payable. The variable HOMECON here represents whether the supplier is registered in the CEO's
hometown province. We test the effect of TOPFIVEAP on HOMECON and report the result in column 3 of Table 10. The coefficient of
HOMECON is significantly positive, suggesting that the probability of top five suppliers becoming top five trade credit suppliers (i.e.,
17
Table 10
Results of other robustness tests.
Variable (1) (2) (3) (4)
Drop Local Suppliers Supplier-Level Tests
CREDIT CREDIT TOPFIVEAP APPER
⁎⁎⁎
HOMEPUR 0.0517
(5.35)
HOMECON 0.0109⁎⁎ 0.0444⁎⁎⁎ 0.0582⁎⁎⁎
(2.42) (2.98) (3.47)
SIZE −0.0047 −0.0046 0.0054 −0.0730⁎⁎⁎
(−1.45) (−1.40) (0.45) (−5.76)
AGE −0.0460 −0.0445 0.0697⁎⁎⁎ 0.0023
(−1.40) (−1.33) (10.80) (0.33)
PPE 0.0190 0.0261 0.0462 −0.1372⁎⁎
(1.06) (1.44) (0.82) (−2.15)
ROA 0.0141 0.0234 0.3150 −0.1649
(0.11) (0.18) (0.62) (−0.35)
EBIT 0.0237 0.0130 −0.2930 0.2436
(0.21) (0.11) (−0.63) (0.56)
CASH 0.0224 0.0248 0.0580 −0.0248
(1.25) (1.36) (0.94) (−0.49)
LEV 0.1385⁎⁎⁎ 0.1404⁎⁎⁎ 0.0595 0.1534⁎⁎⁎
(11.13) (11.07) (1.34) (3.10)
R&D −0.1113 −0.0217 0.9541⁎ −2.1276⁎⁎⁎
(−0.72) (−0.14) (1.68) (−2.94)
CEOSEX 0.0048 −0.0014 −0.0029 0.0578
(0.38) (−0.11) (−0.06) (0.63)
CEOAGE 0.0030 −0.0018 −0.0157 0.0023
(0.15) (−0.09) (−0.26) (0.04)
CEOEDU −0.0123 −0.0132 −0.0187 0.0376
(−0.66) (−0.70) (−0.54) (1.02)
CEOTEN 0.0002 0.0000 −0.0028 −0.0027
(0.20) (0.03) (−1.28) (−1.36)
SUPCAP 0.0005 0.0005 0.0217⁎⁎⁎ −0.0012
(0.85) (0.79) (6.51) (−0.32)
SUPAGE −0.0040 −0.0033 −0.0015 0.0219
(−1.22) (−0.99) (−0.12) (1.64)
TOPFIVESUP −0.0230⁎⁎ −0.0149
(−2.33) (−1.50)
FOREIGN 0.0004 0.0003
(1.48) (0.99)
FIRM FE Y Y Y Y
YEAR FE Y Y Y Y
Adj. R2 0.821 0.814 0.244 0.670
N 1079 1079 10290a 1556b
Notes: In columns (1) and (2), the variable CREDIT is total accounts payable scaled by total assets; HOMEPUR is the sum of the shares purchased
from hometown firms among the top five suppliers; and HOMECON is a dummy that equals 1 if any suppliers registered in CEO's hometown
province. In columns (3) and (4), TOP5AP equals 1 if the supplier is also one of the top five accounts payable counterparties disclosed; APPER
measures the percentage of the accounts payable to the supplier over the total accounts payable of the listed firm; and HOMECON in the supplier-
level setting takes the value of 1 if the supplier is registered in the CEO's hometown province. Detailed definitions of all variables are reported in
Appendix A.
a
The number of observations in column 3 (10290) is larger than that in the baseline regression (3472), because the observations are supplier-
level data and there is > 1 supplier for each firm-year observation.
b
In the regression of column 4, we require the top five suppliers to also be the top five recipients of AP, thereby reducing the observation number.
In other words, only suppliers that are both top five suppliers in terms of purchased amount and top five recipients of accounts payable are retained
in the column 4 regression.
top recipients of accounts payable) is higher when they are registered in CEOs' hometown province.
We further keep the sample with suppliers that are both a top five supplier of purchased amount and a top five recipient of
accounts payable. A continuous variable APPER is constructed to measure the percentage of trade credit owed to the supplier over the
total trade credit. A positive coefficient of HOMECON in column 4 of Table 10 indicates that suppliers from CEOs' hometown
provinces grant more trade credit to a listed firm. Our conclusion is robust using the supplier-level data.
18
5. Conclusions
This study examines the effect of CEOs' hometown connections with suppliers on firms' access to trade credit using a sample of
Chinese listed firms. We find that CEOs' hometown connections help firms to access trade credit. We further find that the hometown
effect is more pronounced for firms that are not state-owned, firms that are located in provinces with poorly developed financial
systems, and firms whose CEOs' hometowns have a strong merchant guild culture or whose CEOs hold an important position in the
hometown chamber of commerce. Moreover, CEOs' hometown connections play a more important role in firms with higher in-
formation opacity and in firms located in regions with weaker social trust.
Finally, the positive relationship between CEOs' hometown connections with suppliers and access to trade credit is robust to
several methods adopted to address endogeneity, including fixed effects at different dimensions, 2SLS with instrumental variables,
and DID models with CEO turnover and crises. Moreover, the results hold when we replace measures of key variables, exclude firms
hiring local CEOs, and adopt supplier-level data.
Our study provides evidence that in an emerging market such as China, whose financial market is immature, credit rationing is
severe, and legal protection is weak, firms make full use of CEOs' hometown connections with suppliers to access more trade credit to
alleviate financing constraints. The findings help to explain why China's economy grew so rapidly over the past 4 decades despite
China's undeveloped formal institutions. Our results also provide implications of taking advantage of this unique informal institution
for other emerging markets when promoting their economic development. However, there are some inevitable shortcomings in this
study. For example, it would be valuable to clearly identify the hometown of the supplier's owner; however, this information is not
available in most current studies because a large percentage of suppliers are private firms. Moreover, further research is required on
the subject of how firms establish connections with CEOs' hometown suppliers.
Acknowledgements
We greatly appreciate the helpful comments and suggestions from Qianwei Ying, Xueyong Zhang, Weihua Zhang and seminar
participants at East China University of Science and Technology, Huazhong University of Science and Technology, Guangxi
University, Xiamen University, Zhongnan University of Economics and Law, Beijing Technology and Business University and
Shanghai Jiaotong University. We also gratefully acknowledge financial support from the National Natural Science Foundation of
China (Grant No. 71772178, 71772155, 71572158). All errors are our own.
Appendix A. Definitions of variables
Variable Detailed definition
Dependent variables
CREDIT Ratio of accounts payable over total assets
L_CREDIT Ratio of accounts payable over total liabilities
NET_CREDIT Net amount of accounts payable and receivable over total assets
FIN_CREDIT Accounts payable with terms > 1 year over total assets
Key independent variables

HOMEPUR Share purchased from CEOs' hometown firms among top five suppliers
HOMECON Equals 1 if any suppliers registered in CEO's hometown province
Control variables
Customer/listed firm characteristics
SIZE Natural logarithm of total assets
AGE Natural logarithm of the observed year minus the founding year plus one
PPE Total fixed assets over total assets
ROA Total net earnings over total assets
EBIT Total earnings before tax and interest over total assets
CASH Total operating cash flows over total assets
LEV Total liabilities over total assets
R&D Total research and development expenditures over total assets
CEO characteristics
CEOSEX Takes the value of 1 if CEO is male, 0 otherwise
CEOAGE Natural logarithm of CEOs' age
CEOEDU Takes the value of 1 if CEO has a college degree or above.
CEOTEN Difference of the observed year and the CEO's first employment year
Supplier characteristics
SUPCAP Natural logarithm of the average suppliers' registered capital
SUPAGE Natural logarithm of the mean of the observed year minus founding year
Transaction characteristics
TOPFIVESUP Sum of shares purchased from all top five suppliers
LOCALSUP Sum of shares purchased from local firms among top five suppliers
FOREIGN Sum of shares purchased from foreign firms among suppliers
19
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Journal of Corporate Finance 62 (2020) 101574

Contents lists available at ScienceDirect

Journal of Corporate Finance

CEOs' hometown connections and access to trade credit: Evidence

3. Data, variables, and methodology

3.2.1. CEOs' hometown connections

3.2.2. Trade credit

3.2.3. Control variables

3.3. Descriptive analysis and univariate tests

3.4. Regression models

Variable Obs Mean Std.Dev. Min Max

CREDIT 3472 0.0886 0.0688 0.0032 0.3410

Panel B Univariate tests

HOMECON = 1 HOMECON=0 Diﬀerence

HOMEPUR 0.0505⁎⁎⁎ 0.0173⁎⁎⁎ 0.0170⁎⁎⁎ 0.0236⁎⁎⁎

4. Empirical results and analysis

4.2. Cross-sectional tests based on features of China's institutions

4.2.1. Inﬂuence of ownership structure

4.2.2. Inﬂuence of regional ﬁnancial marketization

4.2.3. Inﬂuence of the merchant guild culture

HOMEPUR 0.0078 0.0407⁎⁎⁎ 0.0061 0.0195⁎⁎⁎

standard deviation increase of share purchased from hometown suppliers.

4.2.4. Inﬂuence of professional connections

4.3. Potential channels

4.3.1. Information opacity

4.3.2. Social trust

4.4.1. Fixed eﬀects at diﬀerent dimensions

HOMEPUR 0.0152⁎⁎ 0.0286⁎⁎⁎

4.4.2. 2SLS model with instrumental variables

HOMEPUR 0.0245⁎⁎⁎ 0.0253⁎⁎⁎ 0.0285⁎⁎⁎

IV1: RICE IV2: DIANUM IV 1&2

HOMEPUR CREDIT HOMEPUR CREDIT HOMEPUR CREDIT

4.4.3. PSM-DID model with settings of CEO turnover

4.4.4. Identiﬁcation of the supply role of trade credit

4.5. Robustness tests

4.5.1. Alternative measures of dependent and independent variables

POST −0.0220⁎ 0.0114

4.5.2. Exclude ﬁrms hiring local CEOs

Global ﬁnancial crisis Industrial crisis

HOMEPUR 0.0173 0.0198⁎⁎⁎

CREDIT L_CREDIT NET_CREDIT FIN_CREDIT

4.5.3. Using supplier-level data

Drop Local Suppliers Supplier-Level Tests

CREDIT CREDIT TOPFIVEAP APPER

Appendix A. Deﬁnitions of variables

Variable Detailed deﬁnition

Key independent variables

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