Trade credit, collateral liquidation, and borrowing constraints
AbstractAssuming that firms' suppliers are better able to extract value from the liquidation of assets in default and have an information advantage over other creditors, the paper derives six predictions on the use of trade credit. (1) Financially unconstrained firms (with unused bank credit lines) take trade credit to exploit the supplier's liquidation advantage. (2) If inputs purchased on account are sufficiently liquid, the reliance on trade credit does not depend on credit rationing. (3) Firms buying goods make more purchases on account than those buying services, while suppliers of services offer more trade credit than those of standardized goods. (4) Suppliers lend inputs to their customers but not cash. (5) Greater reliance on trade credit is associated with more intensive use of tangible inputs. (6) Better creditor protection decreases both the use of trade credit and input tangibility.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Financial Economics.
Volume (Year): 96 (2010)
Issue (Month): 3 (June)
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Web page: http://www.elsevier.com/locate/inca/505576
Trade credit Collateral Financial constraints Asset tangibility Creditor protection;
Other versions of this item:
- Daniela Fabbri & Anna Maria Cristina Menichini, 2005. "Trade Credit, Collateral Liquidation and Borrowing Constraints," CSEF Working Papers 146, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 08 Feb 2009.
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
- K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
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