Drawing on current literature, this study develops a simple external financing model and provides international evidence of the causal effects of corporate governance improvements on trade credit. We introduce an internal governance perspective, hypothesizing that weak internal governance, which fosters managerial agency problems, allows firm managers to misuse trade credit. Specifically, poor governance may lead firms to rely on supplier financing as a substitute for traditional financing when they face financing constraints, a practice the literature argues raises concerns about shifting a firm's financial burdens onto its suppliers. Using a decade of data surrounding governance-enhancing board reforms in 38 countries, our difference-indifferences analyses strongly support these predictions. We find that strengthening board oversight via exogenous reforms reduces firms' reliance on supplier financing. Improved internal governance decreases firms' dependence on supplier financing and limits the manipulation of payables through real earnings management activities, such as inventory overproduction, which affects accounts payable. We also find that the effect of internal governance reforms is most pronounced in countries with stronger external governance mechanisms, suggesting a complementary effect. Additionally, our findings show that enhanced governance leads to better investment decisions and improved firm performance, especially for financially constrained firms and those with high agency costs.

Rising intangible assets on corporate balance sheets around the world could limit borrowing capacity and consequently hinder growth if firms must preserve cash and forgo investment opportunities. We show that financial development lowers the sensitivity of cash holdings to tangible assets and promotes firm growth. We also find that sectors with a smaller proportion of tangible assets grow faster in countries with more developed financial markets. Our analysis reveals an important asset tangibility channel through which financial development facilitates firm growth.

This paper investigates the impact of a firm’s annual report readability and ambiguous tone on its borrowing costs. We find that firms with larger 10-K file sizes and a higher proportion of uncertain and weak modal words in 10-Ks have stricter loan contract terms and greater future stock price crash risk. Our results suggest that the readability and tone ambiguity of a firm’s financial disclosures are related to managerial information hoarding. Shareholders of firms with less readable and more ambiguous annual reports not only suffer from less transparent information disclosure but also bear the increased cost of external financing.

This paper examines how credit risk spillovers affect corporate financial flexibility. We construct separate empirical proxies to disentangle the two channels of credit risk spillovers—credit risk contagion (CRC), where one firm's default increases the distress likelihood of another; and product market rivalry (PMR), where the same default strengthens the position of a competitor. We show that firms facing greater CRC have weaker subsequent operating performance and must contend with less favorable bank loan terms. Meanwhile, they accumulate more cash by issuing equity, selling assets, and reducing investment and payout. In contrast, PMR generally has opposite, albeit weaker, effects. Our findings suggest that credit risk spillovers, especially CRC, play an important role in corporate liquidity management.

Using a corporate culture measure based on the textual analysis of the Q&A section of earnings conference calls, we document robust evidence that similar corporate cultural values between supply chain partners improve the financial performance of suppliers. Consistent with the view that supplier–customer cultural similarity facilitates communication, promotes altruistic attitudes, and builds trust between trading partners, we find that culturally similar suppliers experience higher cost efficiency, fewer problems with underinvestment, and better innovation performance. Our results also indicate that cultural similarity benefits customers, although to a lesser extent. Overall, our study sheds new light on how inter-firm cultural similarity influences firm performance along the supply chain.