Measuring the Systemic Risk in Interfirm Transaction Networks
AbstractUsing a unique and massive data set that contains information on interfirm transaction relationships, we examine default propagation along the trade credit channel and for the first time provide direct and systematic evidence of its existence and relevance. Not only do we implement simulations in order to detect prospective defaulters, we also estimate the probabilities of actual firm bankruptcies and compare the predicted defaults and actual defaults. We find, first, that an economically sizable number of firms are predicted to fail when their customers default on their trade debt. Second, these prospective defaulters are indeed more likely to go bankrupt than other firms. Third, a certain type of firm-bank relationships, in which a bank extends loans to many of the firms in the same supply chain, significantly reduces firms' bankruptcy probability, providing evidence for the existence and relevance of ”deep pockets” as documented in Kiyotaki and Moore (1997).
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Bibliographic InfoPaper provided by Center for Interfirm Network, Institute of Economic Research, Hitotsubashi University in its series Working Paper Series with number 20.
Length: 33 p.
Date of creation: Dec 2012
Date of revision:
interfirm networks; trade credit; default propagation;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-07 (All new papers)
- NEP-BAN-2013-01-07 (Banking)
- NEP-MAC-2013-01-07 (Macroeconomics)
- NEP-RMG-2013-01-07 (Risk Management)
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.:
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