Reverse trade credit - the use of prepayments by French firms
This paper provides the first detailed empirical study on the use of prepayments by firms. Our results based on large panels of French firms support the Daripa and Nilsen (2011) production subsidy theory of prepayment, according to which customers prepay their suppliers when these would otherwise delay production and input supply. However, we also find that advance cash payments may arise as a response to corporate default risk. Our findings show that both firm characteristics (profitability, liquidity, bank funding, and size) and industry characteristics such as the type of traded goods and industry concentration measures influence the volume of prepayments.
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