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No Going Back: How the Production Process Affects Access to Short-term Credit

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  • Simona Mateut
  • Paul Mizen
  • Ydriss Ziane

Abstract

The relationship between the production process and short-term credit is well established in the literature. Here we argue that the stage of fabrication of inventories can affect the incentives to offer and take up trade credit, an important source of short-term credit for businesses. Using a panel of over half a million observations for French firms across several sectors, we ?find evidence that trade credit is enhanced through processing of goods by the seller, as goods become specialized. But we also ?find that as buyers process goods the sellers?' incentives to extend trade credit diminishes. In short, once production takes place there is no going back.

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Bibliographic Info

Paper provided by University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) in its series Discussion Papers with number 12/14.

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Handle: RePEc:not:notcfc:12/14

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Keywords: short-term credit; trade credit; inventories;

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  1. Garcia-Appendini, Emilia & Montoriol-Garriga, Judit, 2013. "Firms as liquidity providers: Evidence from the 2007–2008 financial crisis," Journal of Financial Economics, Elsevier, vol. 109(1), pages 272-291.
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  8. Nadiri, M Ishaq, 1969. "The Determinants of Trade Credit in the U.S. Total Manufacturing Sector," Econometrica, Econometric Society, vol. 37(3), pages 408-23, July.
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  22. Stanley D. Longhofer & Joao A.C. Santos, 2003. "The Paradox of Priority," Financial Management, Financial Management Association, vol. 32(1), Spring.
  23. Brennan, Michael J & Maksimovic, Vojislav & Zechner, Josef, 1988. " Vendor Financing," Journal of Finance, American Finance Association, vol. 43(5), pages 1127-41, December.
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