does trade credit boost firm performance abstractsome firms have achieved good performance in developing countries where the financial sector is far from established one explanation in the literature is that these firms benefit from trade credit a form of informal financing using a survey of firms in china conducted by the world bank in early 2003 this article examines whether trade credit indeed boosts firm performance our ordinary least squares results show that trade credit is significantly and positively correlated with firm performance however using the instrumental variable approach to address endogeneity we find that the statistical significance disappears the results are robust to a series of robustness checks casting doubt on the claim that trade credit boosts firm performance

a model of trade credit in a capital constrained distribution channel abstract in a product market with uncertain demand we examine a distribution channel consisting of one manufacturer and one capital constrained retailer the retailer may fund its business by borrowing credit either from a competitive bank market or from the manufacturer provided it is also to the latter s benefit to extend trade credit under bank credit financing we show that the channel behaves as if the retailer is not constrained by capital in a wholesale price contract we find that trade credit makes both channel members better off and is the unique financing equilibrium trade credit better integrates the channel than bank credit by centralizing the financing of distribution at the manufacturer we further compare bank versus trade credit under a classical channel contract revenue sharing contract in addition we present a set of numerical experiments to show how product cost internal capital and demand variability impact on the market equilibrium under both bank and trade credits

property market efficiency an institutional economics perspective this paper reassesses the debate around property market efficiency and introduces an institutional perspective it considers property market efficiency in terms of the specific characteristics of property itself and the processes through which property is used and traded it argues that the institutional dimension fundamentally alters the concept of efficiency and leads to a partial and contingent judgement on achieved efficiency instead of seeking a judgement on whether the property market as an entity is efficient the institutional approach allows the possibility that property market process may be efficient for some market participants but not for others it also introduces a time dimension suggesting the need to assess the adaptability of property market process as economic and social conditions change

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

a pure financial explanation for trade credit this paper provided a pure financial explanation for the existence of trade credit and for the values of the credit terms offered to customers two motives for extending trade credit were identified the pure operating flexibility motive arises because the opportunity to change credit policy provides the seller an efficient way to respond to fluctuations in demand this motive was eliminated from consideration in this paper by assuming constant demand the seller must hold a liquid reserve when the financial markets are imperfect and the desire to earn an excess rate of return on this reserve explains the pure financial intermediary motive for trade credit the pure financial incentive to lend this liquid reserve to customers was examined by viewing a market borrowing rate of interest that exceeds the market lending rate of interest as a hindrance to trade or equivalently as a financial market tariff this tariff imposes a wedge between the market prices paid and received for the product plus a loan and thereby inflicts a loss of surplus on the seller and buyers trade credit lending enables the seller and or the buyers to recapture at least part of this loss when the source of the tariff does not apply to direct loans to customers financial market tariffs caused by transactions costs fulfill this requirement because the trade credit lender s familiarity with its customers and product provide it with information and collection cost advantages over financial intermediaries tariffs caused by financial intermediary rents fulfill this requirement as well because the parties to a trade credit loan do not employ the services of a financial intermediary increasing opportunity costs and financial market imperfections in addition to the ones described above establish the limits of credit policy the optimal amount of accounts receivable is derived from the condition that the marginal revenue of trade credit lending is equal to the marginal cost this condition combined with factoring costs produces a unique finite optimal credit period accrual accounting for income tax purposes imposes an additional restriction because the firm is taxed on the recovery of its opportunity costs these limitations on credit policy were examined separately in this paper for clarity but they are in effect simultaneously in practice

product risk asymmetric information and trade credit the purpose of this paper is to explain cross sectional variations in trade credit terms across firms and industries this study shows that there is a separating equilibrium in which the size of the cash discount conveys information about product quality the driving forces of this equilibrium outcome are the risk sharing motives of the producer and buyer as well as asymmetric information about product quality the empirical implications of the model are derived and discussed in relation to industry practices

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

trade credit the financial crisis and sme access to finance mounting evidence indicates that firms particularly smes suffered from a significant credit crunch during this crisis we analyze for the first time whether trade credit provided an alternative source of external finance to smes during the crisis using firm level spanish data we find that credit constrained smes depend on trade credit but not bank loans and that the intensity of this dependence increased during the financial crisis unconstrained firms in contrast are dependent on bank loans but not on trade credit

the economics of small business finance the roles of private equity and debt markets in the financial growth cycle abstract this article examines the economics of financing small business in private equity and debt markets firms are viewed through a financial growth cycle paradigm in which different capital structures are optimal at different points in the cycle we show the sources of small business finance and how capital structure varies with firm size and age the interconnectedness of small firm finance is discussed along with the impact of the macroeconomic environment we also analyze a number of research and policy issues review the literature and suggest topics for future research

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

environmental quality competition and eco labeling abstract a three stage game of investment environmental quality provision and price competition is developed to study the impact of green technology investment eco labeling in a duopoly model of vertical product differentiation the firms incentives to invest in green technologies depend on their relative cost structure when firms are identical with respect to fixed costs both firms will always invest but if one firm is more efficient in investing then the other firm may or may not invest depending on the level of unit cost of investment quality competition will be tighter when the low quality firm is more efficient and looser when the high quality firm is more efficient in investing socially optimal investment for both firms is always positive but lower than in the duopoly solution in the absence of environmental externalities the quality dispersion chosen by profit maximizing firms may be too high or too low while environmental externalities increase the possibility low quality dispersion that is too low within the market solution finally and importantly ecolabeling can be used as a means of reducing excessive investment and increasing environmental quality that is too low

evidence on the determinants of credit terms used in interfirm trade trade credit is created whenever a supplier offers terms that allow the buyer to delay payment in this paper we document the rich variation in interfirm credit terms and credit policies across industries we examine empirically the firm s basic credit policy choices whether to extend credit or to require cash payment and if credit is extended whether to adopt simple net terms or terms with discounts for prompt payment we also examine determinants of variations in two part terms results are supportive primarily of theories that explain credit terms as contractual solutions to information problems concerning product quality and buyer creditworthiness trade credit has important economic significance from both micro and macroeconomic perspectives during the 1990s vendor financing has accounted for an average 1 5 trillion of the book value of all assets of u s corporations and has represented approximately 2 5 times the combined value of all new public debt and primary equity issues during a given year as a component of the money supply trade credit in the form of accounts payable exceeds the primary money supply mi by a factor of 1 5 on average 1 clearly efforts to control economic growth through monetary policy can be confounded by aggregate decisions of businesses to increase or decrease reliance on trade credit financing several recent empirical studies examine determinants of firm reliance on trade credit 2 these studies model supply and demand for trade credit using financial statement data accounts receivable and payable 3 however many aspects of trade credit practice are unexplored most notably little is known about the types of credit terms e g net 30 2 10 net 30 and credit policies that are observed across firms and industries the only comprehensive doc

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

the exploitation of relationships in financial distress the case of trade credit this paper develops optimal pricing lending and renegotiation strategies for companies in relationships where one firm is highly dependent on the other long term trade creditor firm relationships induce dependent trade creditors to grant more concessions in debt renegotiations than nondependent creditors anticipating these larger renegotiation concessions not only do less financially stable firms prefer trade credit but all firms agree to pay a higher interest rate for trade credit the model also explains the existence of teaser interest rates and convenience classes findings are consistent with those of the relationship lending literature

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

trade credit and informational asymmetry commonly used trade credit terms implicitly define a high interest rate that operates as an efficient screening device where information about buyer default risk is asymmetrically held by offering trade credit a seller can identify prospective defaults more quickly than if financial institutions were the sole providers of short term financing the information is valuable in cases where the seller has made nonsalvageable investments in buyers since it enables the seller to take actions to protect such investments traditional explanations for the widespread use of trade credit fall into two categories the financing motive holds that capital market imperfections enable sellers to finance buyer purchases at lower cost than financial institutions ferris 4 argues that trade credit provides payment flexibility and thus reduces the overall need for buyers and sellers to maintain precautionary balances emery 3 contends that noncompetitive rents of financial institutions can be circumvented by sellers and buyers through provision of trade credit however the financing motive is not sufficient to explain why small suppliers offer trade credit the wide cross sectional variation in terms or why large buyers often take the prompt payment discount late a second set of explanations is best described as pricing motivations for trade credit provision nadiri 10 argues that availability of alternative payment terms can increase product demand but does not indicate why the offered terms could not be duplicated by financial institutions schwartz and whitcomb 14 argue that trade credit is used to circumvent robinson patman and similar prohibitions on price discrimination the correctness of this position depends on the charge to users of trade credit exceeding the cost of provision by the seller although the explanation is possible in principle an empirical question remains as to why variations in actual credit terms appear to be based on product market rather than buyer characteristics the literature also contains analyses of the impact of changing macroeconomic conditions on trade credit terms and aggregate credit flows schwartz 13 for example employs a financing motive for trade credit to conclude that restrictive monetary policy can be partly mitigated by liberalization of trade credit terms by firms with relatively easy access to capital markets however a microeconomic

measuring welfare effects of product contamination with consumer uncertainty abstract a methodology is developed for measuring consumer welfare loss from market demand due to contamination when information is imperfect comparison of behavior before and after awareness permits calculation of the cost of ignorance which occurs when news of contamination is withheld or undiscovered for a time as well as when excessive reporting and exaggeration cause overreaction avoidance costs are also calculated for consumers who consume less than they would with perfect information due to risk aversion the methodology is applied to analyzing the heptachlor crisis which reduced milk consumption in hawaii by over 80

the implicit costs of trade credit borrowing by large firms we examine a novel but economically important characterization of trade credit relationships in which large investment grade buyers borrow from their smaller suppliers using a matched sample of large retail buyers and their much smaller suppliers we find that slower payment terms by large retailers are associated with lower investment at the supplier level the effects are sharpest during periods of tight bank credit and for firms which we might otherwise characterize as financially constrained the opportunity cost of extending credit to large buyers appears to be positive and sharply increasing in the financial frictions facing a firm

the effect of economic uncertainty on inventory and working capital for manufacturing firms abstract this paper develops an empirical model to investigate the impact of macro economic risk on working capital and the various types of inventory our analysis helps manufacturing firms anticipate the implications of high macro economic risk measured through the economic policy uncertainty epu index on their operations using a sample of 6503 us manufacturing firms during the period 1990 2018 we show that epu drives high levels of inventory thus corroborating existing theories about random disruptions raising safety stock levels we also show that increased economic uncertainty yields higher trade credits payables and working capital thus requiring firms to tie more capital to their operations our results are statistically significant yet these effects are small at the firm level the results are robust when applying the monetary policy uncertainty mpu index to the subsample of the data from 1990 to 2007 instead of the epu index to the same data set

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

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

can ecolabeling schemes preserve the environment a three stage game of production technology signal and price competition is developed to study the impact of eco labeling in a duopoly model of vertical product differentiation the production technology and the subsequent pollution level are non observable by consumers the only way to inform consumers about the environmental quality of the product is to stick an ecolabel on it however a polluting firm may also usurp the ecolabel by incurring a certain cost by assuming that consumers are altruistic and willing to pay for environmental quality we show that ecolabels can reduce the pollution level finally and importantly under restrictive conditions on labeling cost ecolabeling can constitute to some extent an environmentally effective and economically efficient policy however ecolabeling cannot alone internalize the whole negative externality until the optimum point

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 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

supply chain networks with corporate financial risks and trade credits under economic uncertainty abstract the focus of this paper is to provide an analytical framework which can be used to investigate how financial risks affect the values of interconnected supply chain firms from a network perspective and how financial risks affect the supply chain firms profitability as well as the cash and credit transactions in particular we develop a variational inequality equilibrium model in conjunction with capital asset pricing model capm and the net present value npv to determine the optimal supply chain prices profits and implicit equity values of supply chain firms under financial risks and economic uncertainty we illustrate the analytical framework with computational studies which yield interesting managerial implications to the following questions 1 how do financial risks and economic uncertainty affect the values of interconnected supply chain firms from a network perspective 2 how do financial risks and economic uncertainty affect the supply chain firms profitability as well as the cash and credit transactions 3 how does the effect of financial risks change under different competition scenarios

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 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

trade credit and the bank lending channel the bank lending channel theory posits that during monetary contractions banks restrict some firms loans thus reducing their desired investment independently of interest rates previous research finds small firms reduce while large firms accelerate loan growth we find that small firms increase trade credit a substitute credit indicating a strong loan demand it supports the bank lending channel they do not voluntarily cut bank loans since they increase a less desirable alternative using trade credit is propitious since unlike commercial paper investigated by previous researchers it is widely used by the small firms suffering the loan decline surprisingly we also find large firms increase trade credit a puzzle since they are typically assumed to have wide access to other credit using individual manufacturing firm data we find the reasons large firms use trade credit are financial in nature those without a bond rating increase trade credit that is without access to open market credit as relatively few firms have this mark of quality it implies that more firms are affected by credit constraints than previously believed

credibility of trade policy reform and investment the mexican experience abstract this paper assesses whether the program of trade liberalization undertaken by mexico after 1985 was undermined by lack of credibility it provides an empirical counterpart to some of the credibility issues that have been discussed elsewhere in the literature and proposes a methodology based on the estimation of a probit model to measure the probability of trade policy reversal due to the likelihood of occurrence of a balance of payments crisis it is shown that the probability of trade policy reversal reduced indeed the rate of capital accumulation during the first years of the reform

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

trade credit in economic fluctuations and its impact on corporate performance a panel data analysis from china trade credit is an important auxiliary measure to complete transactions in supply chains and it is also an important source of short term financing for companies this paper uses panel data for ch

focusing the financial flow of supply chains an empirical investigation of financial supply chain management the objective of this paper is to establish a theoretical foundation for financial supply chain management fscm in order to strengthen managerial decisions concerning financial flows in supply chains although such decisions are made frequently and partial aspects of fscm are already understood in business practice empirical knowledge about fscm is in its early stages the study provides fundamental information derived from eight case studies based on 40 interviews the analysis extends previous studies of the interface between operations management and finance by i contributing to a mid range theory of fscm by exploring two distinct but not exclusive fscm categories their antecedents and performance effects ii empirically deriving a testable framework for fscm iii relating fscm to established theories in the field of scm and iv basing the analysis on transaction cost economics managerial insights reveal that weak working capital causes firms to focus on fscm more specifically the study identifies two fscm categories pre shipment fscm before invoice release and post shipment fscm after invoice release managers can improve upstream supply chain working capital with pre shipment fscm whereas post shipment fscm strengthens the buying firm s working capital position based on transaction cost economics we analyze how these improvements stem from risk reductions which are more effective if firms are integrated internally and externally

investment trade liberalisation and structural adjustment the disappointing investment response in developing countries to world bank structural adjustment lending sals is considered in the light of a theoretical model of the impact of trade liberalisation and tightening balance of payments constraints on investment the policy reforms under sals are not as conducive to increased investment as they may appear to be at first sight the tendency of countries to apply for sals when confronted with serious balance of payments disequilibrium is also an important factor however there is no evidence that sals are associated with a downward shift in the investment function

law finance and firm growth we investigate how differences in legal and financial systems affect firms use of external financing to fund growth we show that in countries whose legal systems score high on an efficiency index a greater proportion of firms use long term external financing an active though not necessarily large stock market and a large banking sector are also associated with externally financed firm growth the increased reliance on external financing occurs in part because established firms in countries with well functioning institutions have lower profit rates government subsidies to industry do not increase the proportion of firms relying on external financing the corporate finance literature suggests that market imperfections caused by conflicts of interest and informational asymmetries between corporate insiders and investors constrain firms in their ability to fund investment projects the magnitude of these imperfections depends in part on the effectiveness of the legal and financial systems because these systems differ across countries the literature implies that there should exist systematic cross country differences in firms ability to obtain external capital to finance investment in this paper we examine whether the underdevelopment of legal and financial systems does prevent firms in some countries from investing in potentially profitable growth opportunities in particular we focus on the use of long term debt or external equity to fund growth see our earlier work demirgut kunt and maksimovic 1996a which compares firms financial structures in developed and developing countries and finds the greatest difference to be in the provision of long term credit we estimate a financial planning model to obtain the maximum growth rate that each firm in our thirty country sample could attain without access to long term financing we then compare these predicted growth rates to growth rates realized by firms in countries with differing degrees of development in their legal and financial systems our approach enables us to identify specific characteristics of the legal and financial systems that are associated with long term financing of firm growth thus we provide a micro level test of the hypoth

ethnicity and credit in african manufacturing abstract this paper investigates whether market interaction can by itself perpetuate the lack of ethnic diversity that is observed in the business communities of many developing countries using case study data on manufacturing firms in kenya and zimbabwe we find no evidence that blacks or women are disadvantaged in the attribution of bank credit once we control for firm size and other observable characteristics in contrast an ethnic and gender bias is noticeable in the attribution of supplier credit although we cannot rule out the presence of discrimination the bulk of the evidence indicates that network effects play an important role in explaining this bias

bank lending standards and access to lines of credit this paper examines how changes in bank lending standards are related to the availability of bank lines of credit for private and comparable public firms overall we find that access to lines of credit is more contingent on bank lending standards for private than for public firms the impact of bank lending standards is however asymmetric while private firms are less likely than public firms to gain access to new lines when credit market conditions are tight we find no difference between public and private firms in terms of their use or retention of pre existing lines we also find that private firms without lines of credit use more trade credit when bank lending standards are tight which is suggestive of a supply effect overall the evidence suggests that credit crunches are likely to have a disproportionate impact on private firms however pre existing banking relationships appear to mitigate the impact of these contractions on private firms

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

who gets credit the behavior of bureaucrats and state banks in allocating credit to chinese state owned enterprises abstract using a sample of chinese state owned enterprises spanning 1980 to 1994 we investigate the factors that determine the sources of finance for firm level fixed investment including retained earnings bank finance and government transfers direct government transfers were not significantly associated with profitability throughout the period in contrast bank finance was positively linked to both profitability and some types of reform reforms that enabled managers to self select and thus expose themselves and their employees to greater risk were positively associated with acquiring bank finance the association between bank finance and profitability weakened in the 1990s as banks increasingly assumed bailout responsibility

governance and real estate markets performance in nigeria are they related governance has been identified as a key determining variable capable of influencing the performance of any economy activity on this note the study undertakes to investigate the relationship between governance and the real estate markets performance in nigeria the study employs ardl methodology of bound testing approach for the quarterly series spanning 1996q1 to 2010q4 of the variables considered the prominent role of real gdp and governance index were clearly brought to fore both in the short and long run while that of inflation and interest rates were less pronounced statistically the result of ecm further accentuates connection between governance and the real estate market through the establishment a stable long run relationship between them in the final analysis a few policy prescriptions are advice for the attention of all stakeholders in the built environment

trade credit collateral liquidation and borrowing constraints assuming that firms suppliers are better able to extract value from the liquidation of assets in default and have an information advantage over other creditors the paper derives six predictions on the use of trade credit 1 financially unconstrained firms with unused bank credit lines take trade credit to exploit the supplier s liquidation advantage 2 if inputs purchased on account are sufficiently liquid the reliance on trade credit does not depend on credit rationing 3 firms buying goods make more purchases on account than those buying services while suppliers of services offer more trade credit than those of standardized goods 4 suppliers lend inputs to their customers but not cash 5 greater reliance on trade credit is associated with more intensive use of tangible inputs 6 better creditor protection decreases both the use of trade credit and input tangibility

credence goods efficient labelling policies and regulatory enforcement we analyse the optimality of information revelation of hidden attributes of credence goods via alternative labelling procedures when consumers are heterogeneous in their willingness to pay for the hidden attribute producers can either self label their products or have them certified by a third party the government can impose self or third party labelling requirements on either the green or the brown producers our benchmark model develops a condition that links the optimal imposition of third party labelling to the relative market share of each type of the good under complete information we extend our analysis to incorporate asymmetric information and cheating by the producers when corrupt producers can affix spurious labels the government needs to supplement the labelling policy with costly monitoring activities we find that mandatory self labelling schemes generally dominate mandatory third party labelling unless the market share effect greatly exceeds the incentive to cheat effect

bootstrapping in small firms an empirical analysis of change over time abstract while bootstrapping is widely utilized as a strategic practice of small firms and has been regarded in the entrepreneurship literature as an important topic of study little has been done to link bootstrapping to organizational theory this paper presents hypotheses and an empirical study regarding bootstrapping and organizational development for small firms the results of the study indicate that different types of bootstrapping are utilized at different periods in the life of a small firm and that the methods utilized coincide to some extent with organizational theory predictions

the price of reverse factoring financing rates vs payment delays reverse factoring a financial arrangement where a corporation facilitates early payment of its trade credit obligations to suppliers is increasingly popular in industry many firms use the scheme to induce their suppliers to grant them more lenient payment terms by means of a periodic review base stock model that includes alternative sources of financing we explore the following question what extensions of payment terms allow the supplier to benefit from reverse factoring we obtain solutions by means of simulation optimisation we find that an extension of payment terms induces a non linear financing cost for the supplier beyond the opportunity cost of carrying additional receivables furthermore we find that the size of the payment term extension that a supplier can accommodate depends on demand uncertainty and the cost structure of the supplier overall our results show that the financial implications of an extension of payment terms need careful assessment in stochastic settings

credit contagion from counterparty risk standard credit risk models cannot explain the observed clustering of default some times described as credit contagion this paper provides the first empirical analysis of credit contagion via direct counterparty effects we find that bankruptcy announce ments cause negative abnormal equity returns and increases in cds spreads for credi tors in addition creditors with large exposures are more likely to suffer from financial distress later this suggests that counterparty risk is a potential additional channel of credit contagion indeed the fear of counterparty defaults among financial institu tions explains the sudden worsening of the credit crisis after the lehman bankruptcy in september 2008

when do trade credit discounts matter evidence from italian firm level data italian firms are top users of trade credit in an international comparison the paper offers some clues to the determinants of this stylized fact exploiting the answers of about 1900 manufacturing firms on a wide range of contractual features separately for domestic and foreign customers the main finding of the univariate analysis is that with the almost totality of transactions made on credit there is no evidence that this way of financing is more expensive than loans an econometric investigation shows that discounts offered have the expected effect of reducing payment delays mostly for customers located abroad where customary credit periods are shorter and creditors rights protection is more effective the result is consistent with the poor explanatory power of discounts received in regressions for the trade debt period of domestic firms

a transactions theory of trade credit use this paper derives a transactions theory of trade credit use from the motives of trading partners to economize on the joint costs of exchange in the formal analysis uncertain delivery time is used to generate a demand by firms to hold inventories of both goods and money trade credit is viewed as a mechanism that separates the exchange of money from the uncertainty present in the exchange of goods by forewarning both trading partners of the timing of money flows credit permits a reduction in precautionary money holdings and the more effective management of net money accumulations

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

macroeconomic stability investment and growth in developing countries abstract it is widely hypothesised that sound macroeconomic policies promote growth by providing a more secure environment for private sector investment decisions this proposition is tested for a cross section of developing countries over the period 1980 1990 using a variety of measures of the quality of macroeconomic management the evidence suggests that good macroeconomic management is associated with faster growth for a given rate of investment it is less clear that the volume of investment is significantly affected there is little evidence of non linearities the results are robust to an extension of the data period back to 1972

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

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

does trade credit redistribution thwart monetary policy evidence from italy italy is an ideal candidate for testing the credit view of the transmission mechanism because of a bank centred financial structure a sizeable trade debt and an economy titled towards small firms an empirical analysis of trade credit and debt on averaged panel data shows that small firms act as financially constrained and cycle sensitive whereas large ones aim at smoothing sales adopt an integrated management of inventories and receivables and have a higher trade debt to purchases elasticity on balance the net trade credit channel does not as implied by the credit view shield small firms from a monetary squeeze

the source of fluctuations in money evidence from trade credit abstract this paper tests the relative importance of technology shocks and financial shocks as sources of fluctuations in money the model extends the theory of king and plosser 1984 by recognizing that both money and trade credit provide transactions services under certain conditions the co movements between money and trade credit can reveal the nature of the underlying shocks the empirical results strongly suggest that shocks to the financial system account for most of the fluctuations in money in the long run and at business cycle frequencies on the other hand technology shocks appear to be more important at seasonal frequencies

green business and blue angels this paper presents a model of a monopolist svoluntary overcompliance with legal environmentalstandards under asymmetric information about thefirm s environmental impacts the key assumptions are the existence of quality premia for environmentalsoundness a positive but imperfect degree ofmonitoring and adaptive consumer expectations conditions necessary for overcompliance to arise in aprofit maximizing equilibrium are derived the effectsof a third party eco labeling system are analyzed itis shown that the existence of an independent labelingauthority increases the likelihood of overcomplianceto be profit maximizing moreover firms might have anincentive to lobby for the introduction of such asystem the effect of consumers risk preferences andan instrument for preventing greenwash companieslying about their environmental performance is alsodiscussed

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

effects of label information on consumer willingness to pay for food attributes choice experiments ces are often used to elicit consumer willingness to pay wtp for food attributes a concern about these approaches is that food attributes provided to respondents are assumed independent of attributes not provided we use surveys containing a series of ces to investigate effects of adding beef steak attributes wtp for important attributes in the ces decrease when the number of attributes increases from three to four while wtp increases when the number of attributes increases from four to five changes in wtp for attributes depend on their relationships with newly added attributes and the number of attributes presented copyright 2007 oxford university press

trade credit in small and medium size firms an application of the system estimator with panel data financing through suppliers is a subject that has been little studied in the economic literature in general and in corporate finance in particular although several hypotheses have been put forward to explain the different reasons behind this phenomenon trade credit is not based on a general theory

raised without antibiotics lessons from voluntary labeling of antibiotic use practices in the broiler industry voluntary labeling improves market efficiency if consumers receive the product characteristics they demand and producers are compensated for producing these characteristics for this to occur label claims have to be truthful credible and understandable we examine the introduction of raised without antibiotics rwa label claims in the broiler industry by perdue farms perdue and tyson foods tyson in 2007 and the events that follow we ask whether voluntary label claims were able to improve efficiency in the market for rwa chicken products in this case evidence presented as part of court testimony suggests that tyson did not deliver the rwa attribute that consumers demanded competitors suffered and tyson profited from introducing what was ruled to be a false and misleading label claim to the marketplace while the media informed consumers and stockholders of these events we found little evidence in publicly available data literature or documentation from court cases that tyson suffered significant harm in the market or from stockholders the u s department of agriculture food safety and inspection service did ultimately remove tyson s label claims from the marketplace and the legal system provided some redress to competitors and consumers even so labels with animal raising claims such as rwa and voluntary process based label claims in general continue to be challenged by similar issues that is consumer confusion the absence of universally accepted definitions and varying degrees of credibility

an agency model to explain trade credit policy and empirical evidence this article explains trade credit policy based on the agency theory according to this theory we have developed an agency model based on the adverse selection and moral hazard phenomena arising from the relation between sellers and buyers this model has been estimated by using panel data methodology applied to uk companies our findings strongly support the model proposed we find that smaller firms those with a smaller proportion of fixed assets and those that are less profitable extend more trade credit whereas firms with a high proportion of variable costs and high percentage of bad debts extend less

green markets eco certification and equilibrium fraud abstract consumers voluntarily pay significant price premiums to acquire unobservable environmental attributes in green markets this paper considers the performance of eco certification policy under circumstances where consumers cannot discern environmental attributes in goods but are able to form rational expectations regarding the extent of illicit activities in the green market the main results are i fraud is less prevalent in green markets when entry barriers limit the number of firms ii conventional environmental policies on polluting techniques increase the incidence of fraud and can even preclude the use of non polluting techniques which would otherwise emerge in green markets iii voluntary eco certification policies can decrease fraud increase output and raise profits per firm and iv in cases where the socially optimal resource allocation can be supported the optimal policy involves negative unit certification fees positive fixed certification fees and is revenue generating for the certifying agent

information costs and the organization of credit markets a theory of indirect lending this paper explains indirect lending as a strategy for reducing a bank s cost of screening borrowers commercial banks appear to ration credit by rejecting some direct loan applicants although they accept higher risk borrowers who apply for loans indirectly through retailers however the more thorough credit check on direct loans causes applicants to sort themselves according to risk indirect applicants signal their higher risk through their choice of financing since banks gather more accurate information on direct applicants the two types of contracts should differ in predictable ways these implications are tested with federal reserve data on 5 000 automobile loans

corporate trade credit and inventories new evidence of a trade off from accounts payable and receivable abstract trade credit is an important source of finance for firms and has been well researched but the focus has been on financial trade offs in this paper we consider the trade offs with inventories and develop a simple model that recognizes the incentives a firm faces to offer and receive trade credit our model identifies the response of accounts payable and accounts receivable to changes in the cost of inventories profitability risk and liquidity and importantly this influence operates through a production channel our results support the model and complement many existing studies focused on explaining the financial terms of trade credit