Working Paper: NBER ID: w22286
Authors: Niklas Amberg; Tor Jacobson; Erik von Schedvin; Robert Townsend
Abstract: Using data on exogenous liquidity losses generated by the fraud and failure of a cash-in-transit firm, we demonstrate a causal impact on firms’ trade credit usage. We find that firms manage liquidity shortfalls by increasing the amount of drawn credit from suppliers and decreasing the amount issued to customers. The compounded trade credit adjustments are at least as great, if not greater than corresponding adjustments in cash holdings, suggesting that trade credit positions are economically important sources of reserve liquidity. The underlying mechanism in trade credit adjustments is in part due to shifts in credit durations—both upstream and downstream.
Keywords: Trade Credit; Liquidity Management; Corporate Finance
JEL Codes: D22; G30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| exogenous liquidity losses due to the Panaxia event (F65) | firms adjust their trade credit positions (D21) |
| firms experiencing liquidity shocks (G33) | increase drawn credit from suppliers (E51) |
| firms experiencing liquidity shocks (G33) | decrease credit issued to customers (G21) |
| adjustment in trade credit usage (F32) | managing liquidity shortfalls (G33) |
| propensity to default on trade credit increases for firms facing liquidity shocks (G33) | increase in accounts payable (M41) |
| effort to enforce overdue payments from customers (G33) | propensity to default on trade credit increases (G33) |
| adjustments in trade credit margins (F32) | changes in cash holdings (E41) |