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Trade Credit Contracts

Listed author(s):
  • Leora F. Klapper
  • Luc Laeven
  • Raghuram Rajan

We employ a novel dataset on almost 30,000 trade credit contracts to describe the broad characteristics of the parties that contract together, the key contractual terms such as the discount for early payment and the days by when payment is due. Whereas prior work has typically used information on only one side of the buyer-seller transaction, this paper utilizes information on both. We find that the largest and most creditworthy buyers receive contracts with the longest maturities from smaller suppliers, with the latter extending credit to the former perhaps as a way of certifying product quality. Discounts for early payment seem to be offered to riskier buyers to limit the potential nonpayment risk when credit is extended for these non-financial reasons.

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File URL: http://www.nber.org/papers/w17146.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17146.

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Date of creation: Jun 2011
Publication status: published as Leora Klapper & Luc Laeven & Raghuram Rajan, 2012. "Trade Credit Contracts," Review of Financial Studies, Society for Financial Studies, vol. 25(3), pages 838-867.
Handle: RePEc:nbr:nberwo:17146
Note: CF
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