Measuring the Systemic Risk in Interfirm Transaction Networks
Using a unique and massive data set that contains information on interfirm transaction relationships, we examine default propagation along the trade credit channel and for the first time provide direct and systematic evidence of its existence and relevance. Not only do we implement simulations in order to detect prospective defaulters, we also estimate the probabilities of actual firm bankruptcies and compare the predicted defaults and actual defaults. We find, first, that an economically sizable number of firms are predicted to fail when their customers default on their trade debt. Second, these prospective defaulters are indeed more likely to go bankrupt than other firms. Third, a certain type of firm-bank relationships, in which a bank extends loans to many of the firms in the same supply chain, significantly reduces firms' bankruptcy probability, providing evidence for the existence and relevance of ”deep pockets” as documented in Kiyotaki and Moore (1997).
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- Boissay, Frédéric, 2006. "Credit chains and the propagation of financial distress," Working Paper Series 0573, European Central Bank.
- NAKAJIMA Kentaro & SAITO Yukiko Umeno & UESUGI Iichiro, 2012. "Localization of Interfirm Transaction Relationships and Industry Agglomeration," Discussion papers 12023, Research Institute of Economy, Trade and Industry (RIETI).
- Claudio Raddatz, 2010.
"Credit Chains and Sectoral Comovement: Does the Use of Trade Credit Amplify Sectoral Shocks?,"
The Review of Economics and Statistics,
MIT Press, vol. 92(4), pages 985-1003, November.
- Raddatz, Claudio, 2008. "Credit chains and sectoral comovemen t: does the use of trade credit amplify sectoral shocks ?," Policy Research Working Paper Series 4525, The World Bank.
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- Upper, Christian, 2011. "Simulation methods to assess the danger of contagion in interbank markets," Journal of Financial Stability, Elsevier, vol. 7(3), pages 111-125, August.
- Horvath, Michael, 2000. "Sectoral shocks and aggregate fluctuations," Journal of Monetary Economics, Elsevier, vol. 45(1), pages 69-106, February.
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