does trade credit play a signalling role some evidence from smes microdata using micro data on small and medium sized enterprises this paper empirically investigates the signalling hypothesis formulated on the role of trade credit biais and gollier in rev financ stud 10 903 937 1997 burkart and ellingsen in am econ rev 94 569 590 2004 the research method adopted allows evaluation of the impact of suppliers credit on bank debt accounting for the strength duration of bank firm relationships our main finding is that trade credit seems to have an information content for banks especially when the latter do not dispose of adequate soft information on firms which is likely the case at the beginning stages of bank firm relationships an implication of our results is that the availability of suppliers credit might be crucial to foster access to institutional funding for new firms entering the market our evidence also suggests that banks seem to consider suppliers a reliable source of information on firms financial conditions even after several years of lending relationships

trade credit bank lending and monetary policy transmission this paper investigates the role of trade credit in the transmission of monetary policy most models of the transmission mechanism allow the firm to access only financial markets or bank lending according to some net worth criterion in our model we introduce trade credit as an additional source of funding we predict that when monetary policy tightens there will be a reduction in market and bank lending and an increase in trade credit this is confirmed with an empirical investigation of 16 000 manufacturing firms

business groups and internal capital markets the recovery of the mexican economy in the aftermath of the 1995 crisis in the second half of the nineties the mexican economy experienced a severe financial crisis however as the initial panic subsided mexico started to show promising signals of macroeconomic recovery not only did the economy rebound within a year but also grew steadily afterward averaging an annual rate slightly above 5 during 1996 2000 in this article it is suggested that the business group structure helped in the recovery of the economy the collapse of the banking system and the interruption of financing flows through the domestic financial markets was overcome by a change in the firms capital structure firms when possible started to depend more on trade credit and the internal capital market of business groups created a financial cushion that kept the economy working in order to offer a rationale for the mexican experience a theoretical model is presented where it is shown that moral hazard problems are reduced within a business group as long as affiliated firms in the nontradable sector surrender control rights during periods of crisis copyright 2007 oxford university press

accounts receivable management policy theory and evidence this paper develops and tests hypotheses that explain the choice of accounts receivable management policies the tests focus on both cross sectional explanations of policy choice determinants as well as incentives to establish captives we find size concentration and credit standing of the firm s traded debt and commercial paper are each important in explaining the use of factoring accounts receivable secured debt captive finance subsidiaries and general corporate credit we also offer evidence that captive formation allows more flexible financial contracting however we find no evidence that captive formation expropriates bondholder wealth firms typically sell merchandise on credit rather than requiring immediate cash payment such credit sales generate accounts receivable although credit terms and credit collection procedures have been studied see smith 1980 there has been little systematic analysis of the organizational and financial structures employed to manage the firm s accounts receivable these decisions merit more careful attention for two reasons first receivables are a substantial fraction of corporate assets for example 1986 compustat data indicate that accounts receivable are 21 0 of u s manufacturing corporations total assets second we observe substantial diversity in firms use of specialized contracts and intermediaries in their accounts receivable management policies firms can 1 establish a captive finance subsidiary 2 issue accounts receivable secured debt 3 factor 4 employ a credit reporting firm 5 retain a credit collection agency or 6 purchase a credit insurance policy 1 in this paper we demonstrate that accounts receivable management policy offers opportunities for both the development of a robust theory as well as empirical testing of the theory s implications although the data necessary to

sustaining production chains through financial linkages abstract the technological constraints on sustaining production chains have been discussed extensively by development economists but the role of financial linkages has received less attention in a model of recursive moral hazard for a manufacturing supply chain we show that the structure of interlocking receivables and payables serve as the glue for the production chain that sustains complex manufacturing output the inefficiency associated with recursive moral hazard can be mitigated through optimal delays in payments along the chain however efficiency requires large stocks of working capital and invoice prices are high due to implicit amortization costs of inter firm credit

interfirm relationships and informal credit in vietnam trading relations in vietnam s emerging private sector are shaped by two market frictions the difficulty of locating trading partners and the absence of legal enforcement of contracts examining relational contracting we find that a firm trusts its customer enough to offer credit when the customer finds it hard to locate an alternative supplier a longer duration of trading relationship is associated with larger credit as is prior information gathering customers identified through business networks receive more credit these network effects are enduring suggesting that networks are used to sanction defaulting customers

trade credit and cross country predictable firm returns we investigate the role of trade credit links in generating cross border return predictability between international firms using data from 42 countries from 1993 to 2009 we find that firms with high trade credit located in producer countries have stock returns that are strongly predictable by the returns of their associated customer countries this behavior is especially prevalent for firms with high levels of foreign sales and is robust to a variety of controls to better understand this effect we develop an asset pricing model in which firms in different countries are connected by trade credit links the model has further predictions about this phenomenon including stronger predictability during periods of high credit constraints and high uninformed trading volume we find supportive empirical evidence for these results

a review of trade credit literature opportunities for research in operations abstract trade credit arises when a buyer delays payment for purchased goods or services its nature has predominantly been an area of inquiry for researchers from the disciplines of finance marketing and economics but it has received relatively little attention in other domains in our article we provide an integrative review of the existing literature and discuss conflicting study outcomes we organize the relevant literature into seven areas of inquiry and analyze four in detail trade credit motives order quantity decisions credit term decisions and settlement period decisions additionally we derive a detailed agenda for future research in these areas

does competition encourage credit provision evidence from african trade credit relationships previous work has claimed that monopoly power facilitates the provision of credit because monopolists are better able to enforce payment here we argue that if relationship specific investments are required by borrowers to establish creditworthiness monopoly power may reduce credit provision because holdup problems ex post will deter borrowers from investing in establishing creditworthiness empirically we examine the relationship between monopoly power and credit provision using data on the supply relationships of firms in five african countries consistent with the up front investment story we find that monopoly power is negatively associated with credit provision and that this correlation is stronger in older supplier relationships because the data include several observations per firm we are able to utilize firm fixed effects thus netting out unobserved firm characteristics that may have been driving results in earlier studies

a club convergence analysis of per capita energy consumption across australian regions and sectors we examine convergence in per capita energy consumption across nine sectors and seven states and territories in australia over the period 19902016 using the phillips sul club convergence approach we find evidence of multiple convergence clubs for aggregate energy consumption per capita and for energy consumption per capita in eight of the nine sectors with full club convergence in the case of electricity the presence of multiple equilibria for most sectors reflect that states with similar features in terms of climate economic activities and population size among others tend to exhibit similar energy consumption patterns our results highlight the need to tailor policies designed to reduce energy consumption in specific sectors to the consumption convergence paths unique to particular clusters of states

an incentive compatible solution for trade credit term incorporating default risk abstract this paper studies the optimal trade credit term decision in an extended economic ordering quantity eoq framework that incorporates a default risk component a principal agent bilevel programming model with costs minimization objectives is set up to derive the incentive compatible credit term the supplier determines the credit term as the leader in the first level programming by balancing her his financing capacity with the retailer s default risk order behavior and cost shifting at the second level the retailer makes decisions on ordering and payment time by reacting on the term offered by the supplier a first order condition solution procedure is derived for the bilevel programming when credit term is confined within the practically feasible interval two key results are obtained the condition to derive incentive compatible credit term and an equation system to derive threshold default risk criterion filtering retailers suitable for credit granting numerical experiments show that the capital cost of the supplier is the most important factor determining the credit term default risk acts like a filtering criterion for selecting retailers suitable for credit granting empirical evidence supporting our theoretical considerations is obtained by estimating three panel econometric models using a dataset from china s listed companies

bank information monopoly and trade credit do only banks have information about small businesses according to previous studies a bank can set a higher interest rate for small firms by establishing a lending relationship since information asymmetry limits competition between banks therefore the bank can acquire monopoly rent from small firms however if small firms can use trade credit which is another financial source the bank cannot extract monopoly rent in this article we examine whether small firms can use trade credit if the bank sets a higher interest rate using panel data of small firms in japan our analysis shows that when the interest rate the bank sets is too severe or worsened for the borrower the ratio of trade payables increases and the bank loses its amount of loans this result implies that trade creditors alleviate the problems of bank information monopolies in japan

bank credit and trade credit evidence from natural experiments abstract prior studies find mixed evidence about the substitution relation between bank credit and trade credit in this paper using two bank interest rate deregulations in china we revisit the substitution hypothesis by examining how exogenous increases in the availability of bank credit affect trade credit we find that firms with higher credit risk increased their use of bank credit and reduced their use of trade credit after the 2004 bank interest rate ceiling deregulation whereas firms with lower credit risk increased their use of bank credit and reduced their use of trade credit after the 2013 bank interest rate floor deregulation our results provide supportive evidence for the substitution hypothesis that firms reduce their use of trade credit after the relaxation of bank credit and suggest that bank credit is more favorable short term financing than trade credit

trade credit and bank relationships evidence from pre world war i belgium we investigate the determinants of trade credit granted by suppliers in a historical environment which was characterized by high information asymmetries and strong banks focusing on the role of bank firm relationships our results which are based on a unique sample of 535 firm year observations for 125 listed belgian firms in four dominant industries in the period 1905 to 1909 are generally consistent with the financing role of trade credit they suggest that trade credit was a tool for channelling funds from firms with close bank ties to other firms which is consistent with findings for contemporary developing countries

trade credit and the effect of macro financial shocks evidence from u s panel data using disaggregated panel data we examine how firms change trade credit in response to a monetary tightening we find that both accounts payable and accounts receivable increase with tighter monetary policy implying that trade credit helps firms absorb the effect of a credit contraction further both s p 500 firms and a comparison group of smaller firms increase net trade credit accounts receivable minus payable making up for the reduced liquidity associated with tighter policy however we find no evidence that large firms play this role more actively than smaller firms

trade credit and credit rationing asymmetric information between banks and firms can preclude financing of valuable projects trade credit alleviates this problem by incorporating in the lending relation the private information held by suppliers about their customers incentive compatibility conditions prevent collusion between two of the agents e g the buyer and the seller against the third e g the bank consistent with the empirical findings of petersen and rajan 1995 firms without relationships with banks resort more to trade credit and sellers with greater ability to generate cash lows provide more trade credit finally small firms react to monetary contractions by using trade credit consistent with the empirical results of nilsen 1994 article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

access to capital in rural thailand an estimated model of formal versus informal credit the aim of this paper is to understand the mechanism underlying access to credit the author focuses on two important aspects of rural credit markets in thailand first moneylenders and other informal lenders coexist with formal lending institutions such as government or commercial banks and more recently micro lending institutions second potential borrowers presumably face sizable transaction costs obtaining external credit the author develops and estimates a model based on limited enforcement and transaction costs that provides a unified view of those facts the results show that the limited ability of banks to enforce contracts more than transaction costs is crucial in understanding the observed diversity of lenders

in kind finance a theory of trade credit it is typically less profitable for an opportunistic borrower to divert inputs than to divert cash therefore suppliers may lend more liberally than banks this simple argument is at the core of our contract theoretic model of trade credit in competitive markets the model implies that trade credit and bank credit can be either complements or substitutes among other things the model explains why trade credit has short maturity why trade credit is more prevalent in less developed credit markets and why accounts payable of large unrated firms are more countercyclical than those of small firms

creditor concentration an empirical investigation most of the literature on multiple banking assumes equal financing shares however unequal asymmetric or concentrated bank borrowing is widespread and creditor concentration is only weakly correlated with the number of bank relationships this paper therefore investigates the determinants of creditor concentration for german firms using a comprehensive firm bank level dataset for the time period between 1993 and 2003 we document that corporate borrowing from banks is very often concentrated even for the largest firms in our sample leveraged firms and firms with more redeployable assets concentrate their borrowing from banks as are firms dealing with a relationship lender that is profitable that has lower monitoring costs or that operates in a concentrated regional lending market

turnover time and the organic composition of capital this article argues that marx s key concepts of the organic and value compositions of capital depend on his concept of the turnover time of variable capital methods are given for measuring these three indicators which are applied to the us national accounts from 1947 onwards the results show unambiguous tendencies for the organic and value compositions of capital to rise and for the turnover time of variable capital to fall this is consistent with marx s predictions in capital and his explanation for the tendency of the rate of profit to fall

competition and inter firm credit theory and evidence from firm level data in indonesia abstract using firm level data we investigate the relationship between trade credit and suppliers market structure and find a shaped relationship between competition and trade credit with a discontinuous increase in credit provision between monopoly and duopoly this big jump arises because monopolists are more likely to not offer any trade credit than firms in competitive environments our model exploits the fundamentally different nature between cash and trade credit sales arguing that firms are unable to commit ex ante to a trade credit price we show that monopolists will often sell only on cash while credit is always provided in competitive environments

trade credit use as firms approach default using a sample of firms matched with their suppliers we study the use of trade credit as firms approach a default event we show that in the extensive margin around one third of suppliers exit the relationship well ahead of default but the rest continue the relationship relationships are more likely to continue when suppliers sell differentiated goods are located close to their distressed clients sell large proportions to the distressed clients or when the distressed client is in a concentrated market suggesting that dependent suppliers are held up in distressed relationships firms with suppliers that continue the relationship continue purchasing the same amounts from their suppliers and have larger increases in accounts payable suggesting that held up suppliers trade off the potential benefits of granting concessions to their clients during bad times with the risk of increasing their exposure to a distressed firm

interest rates in trade credit markets all things equal interest rates should increase with the borrower s risk and yet klapper laeven and rajan 2012 cannot find such a positive relation in a broad sample of trade credit contracts we shed some light on this puzzle by arguing that competition between informed and uninformed suppliers weakens the link between the trade credit cost and the borrower s creditworthiness our model implies that trade credit rates are more likely to increase with the borrower s risk if suppliers are less profitable have high cost of funds or sell inputs to firms plagued by moral hazard and financial distress

trade credit for supply chain coordination abstract trade credit is a seller s short term loan to the buyer allowing the buyer to delay payment of an invoice it has been the largest source of working capital for a majority of business to business firms in the united states numerous theories have been proposed to explain trade credit mainly from finance perspectives it has also been an important issue in supply chain management surprisingly most literature in supply chain management has examined the retailer s stocking policies given a supplier s trade credit this paper attempts to shed light on trade credit from a supplier s perspective and presents it as a tool for supply chain coordination specifically we explicitly assume firms financial needs for inventory following a newsvendor framework we assume that the supplier grants trade credit and markdown allowance given the supplier s offer the retailer determines order quantity and the financing option for the inventory either trade credit or direct financing from a financial institution our result shows that the supplier s markdown allowance alone cannot fully coordinate the supply chain if the retailer employs direct financing positive financing costs call for trade credit in order to subsidize the retailer s costs of inventory financing using trade credit in addition to markdown allowance the supplier fully coordinates the retailer s decisions for the largest joint profit and extracts a greater portion of the maximized joint profit

local financial development and the trade credit policy of italian smes we investigate the relation between local financial development and trade credit in an integrated financial market our results suggest that trade credit complements the formal finance of small and medium sized enterprises smes at the local level provincial banking development in italy increases the provision of trade credit by smes and stimulates the redistribution of loans via trade credit however cooperative banking reduces the use of trade credit at the local level evidence shows that lower levels of provincial banking development are linked with a stronger decline in trade credit at the start of the global financial crisis we also find that smes in provinces with industrial districts use more trade credit our results confirm that local differences in banking development and the trade credit policy of smes within countries matter adding to earlier findings that the provision of trade credit is complementary to the development of financial institutions at the country level

growth opportunities and trade credit evidence from chinese listed firms abstractprivate firms in china have led the explosive growth of the country s economy but with restricted or no access to formal financing it is puzzling that these firms use relatively less trade credit than their counterparts in developed countries we argue that firms with more growth opportunities should rely mainly on internal financing owing to high asymmetric information especially in a financial market environment biased towards state owned enterprises soes such as china to explore growth opportunities these firms may reduce their level of trade credit in the trade off they face in deciding where to invest using panel data of chinese non financial listed firms for the period 2003 2013 we find that the relationship between growth opportunities and trade credit both accounts receivable and payable is significantly negative and is more pronounced in private firms than in soes furthermore we also find that subsequent to the new receivable pledge policy being introduced chinese firms with

trade credit and monetary policy transmission recently an increasing number of papers have investigated the role of trade credit as an external source of finance when analyzing the monetary transmission mechanism these works support the balance sheet channel view and at the same time explain the difficulties encountered when looking for evidence in favor of the bank lending channel this paper presents a survey of the emerging literature on the role of trade credit in the transmission of monetary policy trying to link it with the well established credit channel literature copyright blackwell publishers ltd 2005

the commitment problem of secured lending the paper presents a new theory of trade credit in which firms buy inputs on credit from suppliers to restore the benefits of secured bank financing impaired by contract incompleteness in a setting where investment is endogenous and unobservable to financiers we show that a bank secured credit contract is time inconsistent upon being granted credit the entrepreneur has an incentive to alter the original input combination jeopardizing the bank s revenues anticipating the entrepreneur s opportunism the bank offers an unsecured credit contract reducing the surplus from the venture one way for the entrepreneur to commit to the contract terms is to purchase inputs on credit from the supplier the supplier observes the input investment and acts as a guarantor that inputs will be purchased as contracted thus facilitating access to secured bank financing the commitment role of trade credit still holds in a multi period extension that investigates the impact of bank relationship lending on secured debt and trade credit our model provides novel testable predictions on optimal financial contracts in both one period and repeated lending relationships

the value of private sector business credit information sharing the us case this paper investigates the value added by private information exchanges that share information on business payment performance we discuss how this information is collected and disseminated by the worlds largest private information broker dun bradstreet we provide the first empirical examination of the importance of this information at the lending decision level our findings indicate that exchange generated information provides significant explanatory power in failure prediction models controlling for other credit information that is easily available to lenders our study complements the work of jappelli and pagano information sharing lending and defaults cross country evidence centre for economic policy research discussion paper 2184 1999 who find in cross country macro level tests that information exchanges add value 2003 elsevier science b v all rights reserved

counter cyclical substitution between trade credit and bank credit abstract this paper explores the substitution relationship between trade credit and bank credit and its counter cyclic dynamic pattern through economic cycles we propose a new theoretical model using a mechanism design method which predicts the substitution between the two credits and its counter cyclic behavior subject to the condition of technological efficiency not less than one this model also helps explain the somewhat contradictory evidence in the literature on the relationship between the two credits we present empirical evidence on the substitution effect and its counter cyclic behavior by using a balanced panel data set of 284 listed chinese companies for the period 1998 2006 we further find that the substitution behaves counter cyclically with respect to the coincident macroeconomic indicator namely gdp our empirical analysis also has some new features such as treating endogeneity carefully and incorporating the lag effect of trade credit coherently

trade credit and supplier competition abstract this paper examines how competition among suppliers affects their willingness to provide trade credit financing trade credit extended by a supplier to a cash constrained retailer allows the latter to increase cash purchases from its other suppliers leading to a free rider problem a supplier that represents a smaller share of the retailer s purchases internalizes a smaller part of the benefit from increased spending by the retailer and as a result extends less trade credit relative to its sales in consequence retailers with dispersed suppliers obtain less trade credit than those whose suppliers are more concentrated the free rider problem is especially detrimental to a trade creditor when the free riding suppliers are its product market competitors leading to a negative relation between product substitutability among suppliers to a given retailer and trade credit that the former provide to the latter we test the model using both simulated and real data the estimated relations are consistent with the model s predictions and are statistically and economically significant

the benefits of lending relationships evidence from small business data this paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm we analyze data collected in a survey of small firms by the small business administration the primary benefit of building close ties with an institutional creditor is that the availability of financing increases we find smaller effects on the price of credit attempts to widen the circle of relationships by borrowing from multiple lenders increases the price and reduces the availability of credit in sum relationships are valuable and appear to operate more through quantities rather than prices

bank and nonbank financial intermediation conglomerates trade credit arrangements and banks are all instances of financial intermediation however these institutions differ significantly in the extent to which the projects financed absorb aggregate intermediary risk in whether or not intermediation is carried out by a financial specialist in the type of projects they fund and in the type of claims they issue to investors the paper develops a simple unified model that both accounts for the continued coexistence of these different forms of intermediation and explains why they differ specific applications to conglomerate firms trade credit and banking are discussed conglomerates trade credit arrangements and banks are all instances of financial intermediation in each case the conglomerate headquarters supplier bank obtains funds by selling financial securities while in turn providing funds in exchange for a claim on project cash flows 1 however in spite of the fundamental similarity between these forms of financial intermediation important differences exist between them in particular