Interfirm Relationships and Informal Credit in Vietnam
AbstractTrading relations in Vietnam's emerging private sector are shaped by two market frictions: the difficulty of locating trading partners and the absence of legal enforcement of contracts. Examining relational contracting, we find that a firm trusts its customer enough to offer credit when the customer faces high costs of finding an alternative supplier. A longer duration of trading relationship is associated with larger credit, as is prior information gathering. Customers identified through business networks receive more credit. These network effects are enduring, suggesting that networks are used to sanction defaulting customers.
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Bibliographic InfoPaper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 132.
Date of creation: 01 Feb 1998
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Other versions of this item:
- John McMillan & Christopher Woodruff, 1999. "Interfirm Relationships And Informal Credit In Vietnam," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1285-1320, November.
- McMillan, John & Woodruff, Christopher, 1998. "Inter-Firm Relationships and Informal Credit in Vietnam," CEPR Discussion Papers 2036, C.E.P.R. Discussion Papers.
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
- P31 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-04-03 (All new papers)
- NEP-MFD-2002-04-03 (Microfinance)
- NEP-SEA-2002-04-03 (South East Asia)
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