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Inter-firm trade finance in times of crisis

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  • C. Menichini, Anna Maria

Abstract

The paper discusses the main features that distinguish inter-firm international trade finance from alternative sources of financing. On the one hand, inter-firm trade finance could help overcome informational problems associated with other lending relationships; on the other, it may contribute to propagate shocks due to the interconnection among firms along credit chains. The paper evaluates the potential effects of a financial crisis on the use of trade credit for firms operating in developing countries. It argues that while the advantages of trade credit might remain largely unexploited due to poor legal institutions, the disadvantages might be exacerbated because of these firms’ greater exposure to a default chain. Based on these arguments, a menu of choices is identified for what policymakers can do to boost firms’ access to inter-firm trade finance in times of crisis.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5112.

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Date of creation: 01 Nov 2009
Date of revision:
Handle: RePEc:wbk:wbrwps:5112

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Related research

Keywords: Debt Markets; Access to Finance; Bankruptcy and Resolution of Financial Distress; Economic Theory&Research; Emerging Markets;

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Cited by:
  1. Independent Evaluation Group, 2013. "Evaluation of the International Finance Corporation's Global Trade Finance Program, 2006-12," World Bank Publications, The World Bank, number 15769, January.
  2. Escaith, Hubert, 2009. "Trade Collapse, Trade Relapse and Global Production Networks: Supply Chains in the Great Recession (revised)," MPRA Paper 31864, University Library of Munich, Germany, revised Jun 2011.

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