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The Impact of Macroeconomic Uncertainty on Trade Credit for Non-Financial Firms

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Author Info

  • Christopher F. Baum

    ()
    (Boston College
    DIW Berlin)

  • Mustafa Caglayan

    (University of Sheffield)

  • Neslihan Ozkan

    ()
    (University of Bristol)

Abstract

In this paper we hypothesize that greater macroeconomic uncertainty would cause firms to increasingly turn to their suppliers as a source of finance, making greater use of trade credit. We test this hypothesis using a panel of non-financial firms drawn from the annual COMPUSTAT database and show that an increase in macroeconomic uncertainty leads to a narrowing of the cross-sectional distribution of firms' trade credit-to-sales ratios.

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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 566.

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Length: 13 pages
Date of creation: 26 Jun 2003
Date of revision:
Handle: RePEc:boc:bocoec:566

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Related research

Keywords: trade credit; financing; liquidity constraints; uncertainty;

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References

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  1. Mitchell A. Petersen & Raghuram G. Rajan, . "Trade Credit: Theories and Evidence," CRSP working papers 322, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  2. Ferris, J Stephen, 1981. "A Transactions Theory of Trade Credit Use," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 243-70, May.
  3. Baum, Christopher F. & Caglayan, Mustafa & Ozkan, Neslihan & Talavera, Oleksandr, 2006. "The impact of macroeconomic uncertainty on non-financial firms' demand for liquidity," Review of Financial Economics, Elsevier, vol. 15(4), pages 289-304.
  4. Smith, Janet Kiholm, 1987. " Trade Credit and Informational Asymmetry," Journal of Finance, American Finance Association, vol. 42(4), pages 863-72, September.
  5. Jeffrey H. Nilsen, 1999. "Trade Credit and the Bank Lending Channel," Working Papers 99.04, Swiss National Bank, Study Center Gerzensee.
  6. Pagan, Adrian, 1986. "Two Stage and Related Estimators and Their Applications," Review of Economic Studies, Wiley Blackwell, vol. 53(4), pages 517-38, August.
  7. Paul Beaudry & Mustafa Caglayan & Fabio Schiantarelli, 1996. "Monetary Instability, the Predictability of Prices and the Allocation of Investment: An Empirical Investigation Using UK Panel Data," Boston College Working Papers in Economics 312., Boston College Department of Economics.
  8. Christopher F Baum & Sylvia Hristakeva, 2001. "DENTON: Stata module to interpolate a flow or stock series from low-frequency totals via proportional Denton method," Statistical Software Components S422501, Boston College Department of Economics, revised 17 Jul 2014.
  9. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
  10. Schwartz, Robert A., 1974. "An Economic Model of Trade Credit," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 9(04), pages 643-657, September.
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Cited by:
  1. Bastos, Rafael & Pindado, Julio, 2013. "Trade credit during a financial crisis: A panel data analysis," Journal of Business Research, Elsevier, vol. 66(5), pages 614-620.

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