Working Paper: CEPR ID: DP17282
Authors: Nuri Ersahin; Mariassunta Giannetti; Ruidi Huang
Abstract: We explore whether financial flows increase the stability of supply chains by studying the trade credit usage of firms that face operating difficulties due to natural disasters. We show that affected firms extend more trade credit, especially if their customers are difficult to replace. The suppliers of affected firms facilitate the trade credit provision by extending trade credit, especially if the relationship with the affected firm is important. On average, supply chains remain stable. Customers sever their relationships with the affected firms only when the affected firms and their suppliers are financially constrained and cannot extend trade credit
Keywords: supply chains; production networks; trade credit; natural disasters
JEL Codes: D2; E23; G3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Natural disasters (H84) | Trade credit provision by affected firms (G32) |
| Natural disasters (H84) | Trade credit usage by affected firms (G32) |
| Trade credit provision by affected firms (G32) | Accounts receivable increase (M41) |
| Trade credit provision by affected firms (G32) | Customer relationship stability (L14) |
| Natural disasters (H84) | Trade credit provision by suppliers (L14) |
| Trade credit provision by suppliers (L14) | Supply chain stability (L14) |
| Operational difficulties (C44) | Trade credit usage (F19) |
| Competitive environment (L13) | Trade credit usage (F19) |
| Financial conditions of affected firms and suppliers (G32) | Trade credit provision (L14) |
| Trade credit provision (F19) | Supply chain stability (L14) |