Customer Relationships and the Provision of Trade Credit during a Recession
AbstractWe investigate the effect of close customer relationships on small firms' provision of trade credit during the 2001-2003 recession in Japan. Many studies argue that close customer relationships are costly for suppliers because when their main customer has a high proportion of the firm's total sales, suppliers cannot easily find alternative customers. As a result, the supplier's bargaining position is weaker. Then suppliers that depend largely on their main customer cannot easily reduce their provision of trade credit, despite the need to do so during a recession. The results in our paper indicate that close customer relationships are not costly for suppliers in trade credit contracts. First, small businesses offer less trade credit, even if the proportion of sales to their main customers is high. Second, suppliers offer less trade credit if they are in financial distress and charged higher interest rates by banks, even when they are dependent on their main customers. Third, highly leveraged dependent suppliers reduce trade credit, unlike highly leveraged independent suppliers. This implies that dependent suppliers can cut back on trade credit in the presence of leverage. These findings imply that close customer relationships are beneficial for suppliers.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 09043.
Length: 33 pages
Date of creation: Aug 2009
Date of revision:
Contact details of provider:
Postal: 11th floor, Annex, Ministry of Economy, Trade and Industry (METI) 1-3-1, Kasumigaseki Chiyoda-ku, Tokyo, 100-8901
Web page: http://www.rieti.go.jp/
More information through EDIRC
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John McMillan & Christopher Woodruff, 1998.
"Interfirm Relationships and Informal Credit in Vietnam,"
William Davidson Institute Working Papers Series
132, William Davidson Institute at the University of Michigan.
- John McMillan & Christopher Woodruff, 1999. "Interfirm Relationships And Informal Credit In Vietnam," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1285-1320, November.
- McMillan, John & Woodruff, Christopher, 1998. "Inter-Firm Relationships and Informal Credit in Vietnam," CEPR Discussion Papers 2036, C.E.P.R. Discussion Papers.
- Mariassunta Giannetti & Mike Burkart & Tore Ellingsen, 0.
"What You Sell Is What You Lend? Explaining Trade Credit Contracts,"
Review of Financial Studies,
Society for Financial Studies, vol. 24(4), pages 1261-1298.
- Burkart, Mike & Ellingsen, Tore & Giannetti, Mariassunta, 2004. "What You Sell is What You Lend? Explaining Trade Credit Contracts," CEPR Discussion Papers 4823, C.E.P.R. Discussion Papers.
- 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.
- Uchida, Hirofumi & Udell, Gregory F. & Watanabe, Wako, 2013.
"Are trade creditors relationship lenders?,"
Japan and the World Economy,
Elsevier, vol. 25, pages 24-38.
- Van Horen, Neeltje, 2007.
"Customer market power and the provision of trade credit : evidence from Eastern Europe and Central Asia,"
Policy Research Working Paper Series
4284, The World Bank.
- Van Horen, Neeltje, 2007. "Customer Market Power and the Provision of Trade Credit; Evidence from Eastern Europe and Central Asia," MPRA Paper 3378, University Library of Munich, Germany.
- Vicente Cuñat, 2002.
"Trade credit: Suppliers as debt collectors and insurance providers,"
Economics Working Papers
625, Department of Economics and Business, Universitat Pompeu Fabra, revised Feb 2004.
- Vincente Cuñat, 2000. "Trade Credit: Suppliers as Debt Collectors and Insurance Providers," FMG Discussion Papers dp365, Financial Markets Group.
- Giuseppe Marotta, 2005.
"When do trade credit discounts matter? Evidence from Italian firm-level data,"
Taylor & Francis Journals, vol. 37(4), pages 403-416.
- Giuseppe Marotta, 2003. "When do trade credit discounts matter? Evidence from Italian firm-level data," Heterogeneity and monetary policy 0303, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica.
- Barbara Summers & Nicholas Wilson, 2003. "Trade credit and customer relationships," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 24(6-7), pages 439-455.
- Olga Rodríguez-Rodríguez, 2006. "Trade Credit in Small and Medium Size Firms: An Application of the System Estimator With Panel Data," Small Business Economics, Springer, vol. 27(2), pages 103-126, October.
- Nicholas Wilson & Barbara Summers, 2002. "Trade Credit Terms Offered by Small Firms: Survey Evidence and Empirical Analysis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(3&4), pages 317-351.
- Carlos A. Molina & Lorenzo A. Preve, 2009. "Trade Receivables Policy of Distressed Firms and Its Effect on the Costs of Financial Distress," Financial Management, Financial Management Association International, vol. 38(3), pages 663-686, 09.
- Chee K. Ng & Janet Kiholm Smith & Richard L. Smith, 1999. "Evidence on the Determinants of Credit Terms Used in Interfirm Trade," Journal of Finance, American Finance Association, vol. 54(3), pages 1109-1129, 06.
- Love, Inessa & Preve, Lorenzo A. & Sarria-Allende, Virginia, 2005.
"Trade credit and bank credit : evidence from recent financial crises,"
Policy Research Working Paper Series
3716, The World Bank.
- Love, Inessa & Preve, Lorenzo A. & Sarria-Allende, Virginia, 2007. "Trade credit and bank credit: Evidence from recent financial crises," Journal of Financial Economics, Elsevier, vol. 83(2), pages 453-469, February.
- Ono, Masanori, 2001. "Determinants of Trade Credit in the Japanese Manufacturing Sector," Journal of the Japanese and International Economies, Elsevier, vol. 15(2), pages 160-177, June.
- Fabbri, Daniela & Klapper, Leora, 2008. "Market power and the matching of trade credit terms," Policy Research Working Paper Series 4754, The World Bank.
- TSURUTA Daisuke & Peng XU, 2007. "Debt Structure and Bankruptcy of Financially Distressed Small Businesses," Discussion papers 07032, Research Institute of Economy, Trade and Industry (RIETI).
- Tore Ellingsen & Mike Burkart, 2002.
FMG Discussion Papers
dp421, Financial Markets Group.
- Jeffrey H. Nilsen, 1999.
"Trade Credit and the Bank Lending Channel,"
99.04, Swiss National Bank, Study Center Gerzensee.
- Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
- Benjamin S. Wilner, 2000. "The Exploitation of Relationships in Financial Distress: The Case of Trade Credit," Journal of Finance, American Finance Association, vol. 55(1), pages 153-178, 02.
- Yoshiro Miwa & J. Mark Ramseyer, 2008. "The Implications of Trade Credit for Bank Monitoring: Suggestive Evidence from Japan," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(2), pages 317-343, 06.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (NUKATANI Sorahiko).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.