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Repayment Enforcement and Informational Advantages: Empirical determinants of trade credit use

  • UCHIDA Hirofumi
  • UESUGI Iichiro
  • HOTEI Masaki

Using unique data we test various trade credit theories and find the following. First, the length of a buyer-seller relationship has a positive impact on the use of trade credit, especially for longer-term credit. In contrast, short-term trade credit is extended based on buyers' hard information. Second, trade credit is more frequently used for transactions in differentiated goods, and the relative bargaining power between the buyer and the seller also matters for the use/non-use of trade credit. Third, we find that the reduction of transaction costs is an important determinant of the use of trade credit. We interpret these findings in light of various theories of trade credit.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 10041.

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Length: 51 pages
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:eti:dpaper:10041
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