Trust in Cultural Institutions and Interfirm Cooperation: Evidence from Religious Scandals

Quentin Dupont and Kayla Marie Freeman

♦ We study how trust in cultural institutions affects cooperation between firms, employing local religious scandals for identification. We focus on trade credit as a trust-intensive aspect of supply chain relationships. In a triple-difference estimation, we find that firms located in scandal areas where the affected religion is prominent reduce trade credit to customers (relative to sales) by 5 percentage points. Consistent with the scandal damaging local norms of cooperation, results are stronger in relationships with limited history, greater geographic barriers, or transaction complexity. Our findings offer novel causal evidence of the influence of local culture on interfirm relationships.

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