Working Paper: NBER ID: w24269
Authors: Victoria Ivashina; Benjamin Iverson
Abstract: Using information on the sales of debt claims for 132 U.S. Chapter 11 bankruptcy cases, we show that large trade creditors’ decisions to sell receivables of a distressed company in bankruptcy are predictive of lower recovery rates, and that in such cases these creditors sell ahead of less informed suppliers and other creditors. This result is especially pronounced for more opaque distressed firms, when trade creditors’ information advantage is likely largest. This evidence shows that suppliers that extend significant amounts of trade credit hold private information about their trade partners. Trade creditors who are geographically closer or in similar industries tend to lend the most, suggesting that these are two channels through which suppliers hold an information advantage.
Keywords: trade credit; bankruptcy; information advantage
JEL Codes: D22; G32; G33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| informed suppliers (L14) | lower recovery rates (G33) |
| trade creditors' decisions to sell receivables (G32) | recovery rates in bankruptcy settings (K35) |
| information advantage (D83) | timing of claims sales (G14) |
| geographic proximity and industry similarity (R32) | information advantage (D83) |
| informed suppliers (L14) | earlier sales in low-recovery scenarios (G33) |