Labor Leverage and Trade Credit Access: How Do Suppliers View Corporate Labor Adjustment Cost?

This study examines the impact of labor leverage on suppliers’ financial decisions, using a sample of Chinese-listed firms from 2007 to 2024. The findings indicate that increased labor leverage significantly restricts access to trade credit financing, primarily by elevating operational risk and tightening financing constraints. Additionally, supplier bargaining power enhances the negative effects of labor leverage on trade credit financing. Cross-sectional analyses show that this impact is more pronounced in firms with higher labor intensity, a greater share of skilled employees, longer trade credit terms, and a lower proportion of interest-free liabilities. In addition, labor leverage reduces supply chain volatility and increases dependence on core suppliers, suggesting that labor adjustment costs are key signals prompting suppliers to modify trade credit policies. To address these challenges, it is recommended that governments implement tax incentives and targeted financial support for labor-intensive firms. Such measures would help mitigate labor adjustment costs, alleviate financial constraints, and promote more stable supplier relationships.