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Trade Credit as a Competitiveness Tool;Evidence from Developing Countries

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  • Van Horen, Neeltje

Abstract

Statistics show that the sale of goods on credit is widespread among firms even when they are financially constrained and thus face relatively high costs in providing trade credit. A possible explanation for this is the use of trade credit as a competitiveness tool. By analyzing both the impact of customer as well as producer market power on a firm’s decision to provide trade credit, we examine whether trade credit is indeed used as a way to lock in customers by firms in developing countries. Using a new dataset containing a large number of firms in 42 developing countries, we find strong evidence that an important driving force behind the decision to provide trade credit is the urge to be competitive. This especially holds for those firms that still have to establish a solid market reputation and for firms located in countries with an underdeveloped banking sector.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2792.

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Date of creation: Jun 2004
Date of revision: Mar 2005
Handle: RePEc:pra:mprapa:2792

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Citations

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Cited by:
  1. Hyndman, Kyle & Serio, Giovanni, 2010. "Competition and inter-firm credit: Theory and evidence from firm-level data in Indonesia," Journal of Development Economics, Elsevier, vol. 93(1), pages 88-108, September.
  2. Leora Klapper & Luc Laeven & Raghuram Rajan, 2012. "Trade Credit Contracts," Review of Financial Studies, Society for Financial Studies, vol. 25(3), pages 838-867.
  3. Galya Taseva, 2012. "Overdue Intercorporate Debts in Bulgaria," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 76-94.
  4. Fabbri, Daniela & Klapper, Leora, 2008. "Market power and the matching of trade credit terms," Policy Research Working Paper Series 4754, The World Bank.
  5. Alarcon, Silverio, 2008. "The Role of Trade Credit in the Spanish Agrogood Industry," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 43861, European Association of Agricultural Economists.
  6. Klapper, Leora, 2005. "The role of factoring for financing small and medium enterprises," Policy Research Working Paper Series 3593, The World Bank.
  7. Galia Taseva, 2012. "Trade Credit Terms between the Firms in Bulgaria," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 110-136.

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