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Trade Credit and the Effect of Macro-Financial Shocks

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  • Yungsan Kim
  • Woon Gyu Choi

Abstract

Many studies examine why firms are financed by their suppliers, but few empirical studies look at the macroeconomic implications of such financial arrangements. Using disaggregated panel data, we examine how firms extend and use trade credit. We find that, controlling for the transactions or asset management motive, both accounts payable and receivable increase with tighter policy, implying that trade credit helps firms absorb the effect of a credit contraction. A comparison of S&P 500 firms with smaller firms, however, provides no evidence that when policy is tightened, large firms play the role of credit suppliers more actively than small firms.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/127.

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Length: 34
Date of creation: 01 Jun 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/127

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Related research

Keywords: Economic models; trade credit; accounts payable; retained earnings; external financing; trade creditors; information asymmetry;

References

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  1. Emery, Gary W., 1987. "An Optimal Financial Response to Variable Demand," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 22(02), pages 209-225, June.
  2. Christiano, Lawrence J & Eichenbaum, Martin & Evans, Charles, 1996. "The Effects of Monetary Policy Shocks: Evidence from the Flow of Funds," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 16-34, February.
  3. Norrbin, S.C. & Reffett, K.L., 1993. "Trade Credit in a Monetary Economy," Working Papers, Department of Economics, Florida State University 1993_06_02, Department of Economics, Florida State University.
  4. Petersen, Mitchell A & Rajan, Raghuram G, 1997. "Trade Credit: Theories and Evidence," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 10(3), pages 661-91.
  5. Ben Bernanke, 1990. "The Federal Funds Rate and the Channels of Monetary Transnission," NBER Working Papers 3487, National Bureau of Economic Research, Inc.
  6. Nadiri, M Ishaq, 1969. "The Determinants of Trade Credit in the U.S. Total Manufacturing Sector," Econometrica, Econometric Society, Econometric Society, vol. 37(3), pages 408-23, July.
  7. Woon Gyu Choi & Yungsan Kim, 2001. "Monetary Policy and Corporate Liquid Asset Demand," IMF Working Papers 01/177, International Monetary Fund.
  8. Christina D. Romer & David H. Romer, 1993. "Credit Channel or Credit Actions? An Interpretation of the Postwar Transmission Mechanism," NBER Working Papers 4485, National Bureau of Economic Research, Inc.
  9. Valerie A. Ramey, 1991. "The Source of Fluctuations in Money: Evidence From Trade Credit," NBER Working Papers 3756, National Bureau of Economic Research, Inc.
  10. Ferris, J Stephen, 1981. "A Transactions Theory of Trade Credit Use," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 96(2), pages 243-70, May.
  11. Lee, Yul W. & Stowe, John D., 1993. "Product Risk, Asymmetric Information, and Trade Credit," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 28(02), pages 285-300, June.
  12. Benjamin S. Wilner, 2000. "The Exploitation of Relationships in Financial Distress: The Case of Trade Credit," Journal of Finance, American Finance Association, American Finance Association, vol. 55(1), pages 153-178, 02.
  13. Smith, Janet Kiholm, 1987. " Trade Credit and Informational Asymmetry," Journal of Finance, American Finance Association, American Finance Association, vol. 42(4), pages 863-72, September.
  14. Brennan, Michael J & Maksimovic, Vojislav & Zechner, Josef, 1988. " Vendor Financing," Journal of Finance, American Finance Association, American Finance Association, vol. 43(5), pages 1127-41, December.
  15. Jeffrey H. Nilsen, 1999. "Trade Credit and the Bank Lending Channel," Working Papers 99.04, Swiss National Bank, Study Center Gerzensee.
  16. Barbara Kavanagh & Thomas R. Boemio & Gerald A. Edwards, Jr., 1992. "Asset-backed commercial paper programs," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), Board of Governors of the Federal Reserve System (U.S.), issue Feb, pages 107-116.
  17. Graham, John R. & Harvey, Campbell R., 2001. "The theory and practice of corporate finance: evidence from the field," Journal of Financial Economics, Elsevier, Elsevier, vol. 60(2-3), pages 187-243, May.
  18. Gertler, Mark & Gilchrist, Simon, 1993. " The Role of Credit Market Imperfections in the Monetary Transmission Mechanism: Arguments and Evidence," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 95(1), pages 43-64.
  19. 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, American Finance Association, vol. 54(3), pages 1109-1129, 06.
  20. Robert E. Carpenter & Steven M. Fazzari & Bruce C. Petersen, 1994. "Inventory Investment, Internal-Finance Fluctuation, and the Business Cycle," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(2), pages 75-138.
  21. Emery, Gary W., 1984. "A Pure Financial Explanation for Trade Credit," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 19(03), pages 271-285, September.
  22. Mian, Shehzad L & Smith, Clifford W, Jr, 1992. " Accounts Receivable Management Policy: Theory and Evidence," Journal of Finance, American Finance Association, American Finance Association, vol. 47(1), pages 169-200, March.
  23. Schwartz, Robert A., 1974. "An Economic Model of Trade Credit," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 9(04), pages 643-657, September.
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