Monitoring attention of institutional investors and trade credit financing

This paper examines the effect of the monitoring attention of institutional investors on firms' trade credit financing. We document that trade credit financing is positively affected by the monitoring attention of the firm's institutional owners. Notably, only institutional investors with the highest monitoring attention can positively affect the firm's account payables, which is consistent with the intervention channel. Meanwhile, institutional investors with low monitoring attention negatively affect trade credit financing, which is consistent with the exit channel of institutional investors. Our findings support the view that the efficacy of institutional monitoring mainly depends on the ownership held by motivated monitoring institutions.

Automated summary

This paper examines the effect of institutional investors' monitoring attention on firms' trade credit financing. The study finds that the monitoring attention of a firm's institutional owners positively affects trade credit financing. Importantly, only institutional investors with the highest monitoring attention positively impact the firm's account payables, consistent with the intervention channel. Conversely, institutional investors with low monitoring attention have a negative effect on trade credit financing, consistent with the exit channel of institutional investors. Our findings support the notion that the effectiveness of institutional monitoring depends on ownership held by motivated monitoring institutions.