Does Competition Encourage Credit Provision? Evidence from African Trade Credit Relationships
Previous work has claimed that monopoly power facilitates the provision of credit, since monopolists are better able to enforce payment. Here, we argue that if relationship-specific investments are required by borrowers to establish creditworthiness, monopoly power may reduce credit provision because hold up problems ex post will deter borrowers from investing in establishing creditworthiness. Empirically, we examine the relationship between monopoly power and credit provision, using data on the supply relationships of firms in five African countries. Consistent with the upfront investment story, we find that monopoly power is negatively associated with credit provision, and that this correlation is stronger in older supplier relationships. Because the data include several observations per firm, we are able to utilize firm fixed-effects, thus netting out unobserved firm characteristics that may have been driving results in earlier studies.
|Date of creation:||Apr 2003|
|Date of revision:|
|Publication status:||published as Fisman, Raymond and Mayank Raturi. "Does Competition Encourage Credit Provision? Evidence from African Trade Credit Relationships." The Review of Economics and Statistics 86, 1 (February 2004): 345-352.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Biais, Bruno & Gollier, Christian, 1997. "Trade Credit and Credit Rationing," Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 903-37.
- Fafchamps, Marcel, 2000. "Ethnicity and credit in African manufacturing," Journal of Development Economics, Elsevier, vol. 61(1), pages 205-235, February.
- Mitchell A. Petersen & Raghuram G. Rajan, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 407-443.
- Mitchell A. Petersen & Raghuram G. Rajan, 1996.
"Trade Credit: Theories and Evidence,"
NBER Working Papers
5602, National Bureau of Economic Research, Inc.
- Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
- Fafchamps, Marcel, 1997. "Trade credit in Zimbabwean manufacturing," World Development, Elsevier, vol. 25(5), pages 795-815, May.
- McMillan, John & Woodruff, Christopher, 1998.
"Inter-Firm Relationships and Informal Credit in Vietnam,"
CEPR Discussion Papers
2036, C.E.P.R. Discussion Papers.
- John McMillan & Christopher Woodruff, 1999. "Interfirm Relationships and Informal Credit in Vietnam," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1285-1320.
- John McMillan & Christopher Woodruff, 1998. "Interfirm Relationships and Informal Credit in Vietnam," William Davidson Institute Working Papers Series 132, William Davidson Institute at the University of Michigan.
- Williamson, Oliver E, 1971. "The Vertical Integration of Production: Market Failure Considerations," American Economic Review, American Economic Association, vol. 61(2), pages 112-23, May.
- Gary Chamberlain, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Oxford University Press, vol. 47(1), pages 225-238.
- repec:oup:restud:v:47:y:1980:i:1:p:225-38 is not listed on IDEAS
- repec:oup:restud:v:63:y:1996:i:3:p:491-519 is not listed on IDEAS
- Parikshit Ghosh & Debraj Ray, 1996. "Cooperation in Community Interaction Without Information Flows," Review of Economic Studies, Oxford University Press, vol. 63(3), pages 491-519.
- Fisman Raymond J, 2003. "Ethnic Ties and the Provision of Credit: Relationship-Level Evidence from African Firms," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-21, October.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:9659. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.