Working Paper: CEPR ID: DP4823
Authors: Mike Burkart; Tore Ellingsen; Mariassunta Giannetti
Abstract: We use a broad range of contractual information to assess the empirical relevance of different financial theories of trade credit. The common feature of all financial theories is that suppliers have an advantage over other lenders in financing credit-constrained firms. While the reasons for the financing advantage differ across theories, they are usually related either to product characteristics or to market structure. We propose a novel identifying strategy that exploits this insight to analyse the trade credit volume and the contract terms. Our analysis suggests that the most important product characteristic for explaining trade credit volume and contract terms is the ease with which the seller?s product can be diverted. Market power in input and output markets also contributes to explain trade credit patterns.
Keywords: Collateral; Contract Theory; Moral Hazard; Trade Credits
JEL Codes: G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Service suppliers (L84) | Trade credit provision (L14) |
| Suppliers of differentiated goods (D43) | Trade credit provision (L14) |
| Suppliers of standardized products (L81) | Trade credit provision (L14) |
| Ease of product diversion (L15) | Trade credit provision (L14) |
| Concentrated industries (L79) | Discounts for early payment (J33) |
| Larger firms (L25) | Trade credit received (F19) |
| Firms with many suppliers (D21) | Trade credit received (F19) |