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Trade Credit Contracts

  • Leora Klapper
  • Luc Laeven
  • Raghuram Rajan

We employ a novel data set on almost 30,000 trade credit contracts to describe the broad characteristics of the parties that contract together and the key terms of these contracts. Whereas prior work has typically used information on only one side of the buyer-seller transaction, we utilize information on both, allowing for the first analysis of buyer-seller pairs. An equally important distinction is that we have multiple contracts for the same buyer or supplier firms, rather than a firm-average response, allowing for the correction of time-invariant firm characteristics that might determine the choice of credit terms. We find that the largest and most creditworthy buyers receive contracts with the longest maturities from smaller suppliers, and that discounts for early payment tend to be offered to riskier buyers. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/rfs/hhr122
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Article provided by Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 25 (2012)
Issue (Month): 3 ()
Pages: 838-867

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Handle: RePEc:oup:rfinst:v:25:y:2012:i:3:p:838-867
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  18. J. Stephen Ferris, 1981. "A Transactions Theory of Trade Credit Use," The Quarterly Journal of Economics, Oxford University Press, vol. 96(2), pages 243-270.
  19. Choi, Woon Gyu & Kim, Yungsan, 2005. "Trade Credit and the Effect of Macro-Financial Shocks: Evidence from U.S. Panel Data," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(04), pages 897-925, December.
  20. Giuseppe Marotta, 2001. "Is trade credit more expensive than bank loans? Evidence from Italian firm-level data," Heterogeneity and monetary policy 0103, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica.
  21. 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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  23. Boissay, Frédéric & Gropp, Reint, 2007. "Trade credit defaults and liquidity provision by firms," Working Paper Series 0753, European Central Bank.
  24. Burkart, Mike & Ellingsen, Tore & Giannetti, Mariassunta, 2004. "What You Sell is What You Lend? Explaining Trade Credit Contracts," CEPR Discussion Papers 4823, C.E.P.R. Discussion Papers.
  25. Lee, Yul W. & Stowe, John D., 1993. "Product Risk, Asymmetric Information, and Trade Credit," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(02), pages 285-300, June.
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