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Independent Directors’ Social Networks and Trade Credit: Monitoring, Advising or Relationship Financing?
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TitleIndependent Directors’ Social Networks and Trade Credit: Monitoring, Advising or Relationship Financing?  
AuthorCao Chunfang and Xu Nan  
Organization Accounting school,Southwestern University of Finance and Economics ; 
Key Wordsindependent directors’ social network; relationship financing; trade credit; alternative financing 
AbstractThis paper first propose the theory that firms hire independent directors to enhance firms reputation and thus obtain more trade credit. Instead of advisory and monitoring role of independent directors, we argue that firms choose independent directors with strong social networks lies in renting their reputation. We find that hiring reputable independent directors are able to help firms acquire more trade credit, but in a costly way: trade credit obtained by relationship financing comes in the form of notes payable, rather than accounts payable. Moreover, we find that trade credit obtained by directors’ networks increases the trade-credit-cash sensitivity. Conclusions above support relationship financing hypothesis, rather than monitoring or advising hypothesis. We also find different type of firms and different macro economy policy does matter. In particular, in the time period when government adapts tight-monetary policy, firms are more likely to benefit from directors’ networking. Different types of firms also exhibit various needs of social networks. Firms with weak social capital and financial constrain are more likely to benefit from the integration between firms’ and independent directors’ social capital. Finally, we argue that reputation financing come at cost. Firms compensate those directors more. Our result is instructive since it helps investors and financial institutions to understand the role and more realistic function of independent directors’ social capital. 
Serial NumberWP722 
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