Working Paper: CEPR ID: DP18500
Authors: Mariassunta Giannetti
Abstract: I review the empirical and theoretical literature on trade credit. I identify two main strands of the literature, which focus, respectively, on expensive trade credit to financially constrained firms and on cheap trade credit to customers with high bargaining power. It emerges that trade credit is sometimes an instrument to mitigate financial frictions and ease access to external finance for customers. However, the ability to extend trade credit is also a source of comparative advantage for suppliers and can affect competition in downstream markets. I highlight the consequences of trade credit usage for monetary policy transmission and industrial structure and highlight new avenues of research, which take into account how trade credit affects the stability of production networks.
Keywords: competition; trade credit; financial frictions
JEL Codes: G3; D2; L1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade credit (F19) | access to external finance (O16) |
| trade credit (F19) | competition in downstream markets (L13) |
| bargaining power of customers (D49) | trade credit provision (F10) |
| trade credit provision (F10) | competition in downstream markets (L13) |
| informational advantage (D83) | trade credit provision (F10) |
| control of moral hazard (G52) | trade credit provision (F10) |