Trade Credit Policies and Shortage of Liquidity in Cycles of Economic Contraction (Ekonomik Daralma Dönemlerinde Likidite Kıtlığı ve Ticari Borç Yönetimi)

This study examines the trade credit practices of 11.000 publicly listed firms from 17 countries (9 developed and 8 developing). The results indicate that firms with a lack of short-term liquidity receive more trade credit for a longer duration. It becomes even more pronounced in times of economic contraction. For robustness, both the period of the 2008 financial crisis and a contractionary period are scrutinized. A slowdown in the economy creates opposing effects on firms from developed and developing countries, while the former use less credit for a shorter period; the latter receive more credit for a longer period of time, whereas firms with a shortage of liquidity behave similarly, i.e., they increase the amount and the duration of trade credit. The findings suggest that firms with a lack of liquidity survive troubling times by obtaining more trade credit from their suppliers.