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No Going Back: How the Production Process Affects Access to Short-term Credit

  • Simona Mateut
  • Paul Mizen
  • Ydriss Ziane

The relationship between the production process and short-term credit is well established in the literature. Here we argue that the stage of fabrication of inventories can affect the incentives to offer and take up trade credit, an important source of short-term credit for businesses. Using a panel of over half a million observations for French firms across several sectors, we ?find evidence that trade credit is enhanced through processing of goods by the seller, as goods become specialized. But we also ?find that as buyers process goods the sellers?' incentives to extend trade credit diminishes. In short, once production takes place there is no going back.

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Paper provided by University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) in its series Discussion Papers with number 12/14.

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Handle: RePEc:not:notcfc:12/14
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  1. Lee, Yul W. & Stowe, John D., 1993. "Product Risk, Asymmetric Information, and Trade Credit," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(02), pages 285-300, June.
  2. Simona Mateut & Spiros Bougheas & Paul Mizen, . "Corporate trade credit and inventories: New evidence of a tradeoff from accounts payable and receivable," Discussion Papers 08/09, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  3. Mateut, Simona & Spiros Bougheas & Paul Mizen, 2003. "Trade Credit, Bank Lending and Monetary Policy Transmission," Royal Economic Society Annual Conference 2003 149, Royal Economic Society.
  4. Petersen, Mitchell A & Rajan, Raghuram G, 1997. "Trade Credit: Theories and Evidence," Review of Financial Studies, Society for Financial Studies, vol. 10(3), pages 661-91.
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  7. Nilsen, Jeffrey H, 2002. "Trade Credit and the Bank Lending Channel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 226-53, February.
  8. Brennan, Michael J & Maksimovic, Vojislav & Zechner, Josef, 1988. " Vendor Financing," Journal of Finance, American Finance Association, vol. 43(5), pages 1127-41, December.
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  10. Smith, Janet Kiholm, 1987. " Trade Credit and Informational Asymmetry," Journal of Finance, American Finance Association, vol. 42(4), pages 863-72, September.
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  12. Daniela Fabbri & Anna Maria Cristina Menichini, 2005. "Trade Credit, Collateral Liquidation and Borrowing Constraints," CSEF Working Papers 146, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 08 Feb 2009.
  13. Andrea Caggese, 2003. "Financing Constraints, Irreversibility, and Investment Dynamics," FMG Discussion Papers dp440, Financial Markets Group.
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  18. Ferris, J Stephen, 1981. "A Transactions Theory of Trade Credit Use," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 243-70, May.
  19. Nadiri, M Ishaq, 1969. "The Determinants of Trade Credit in the U.S. Total Manufacturing Sector," Econometrica, Econometric Society, vol. 37(3), pages 408-23, July.
  20. Garcia-Appendini, Emilia & Montoriol-Garriga, Judit, 2013. "Firms as liquidity providers: Evidence from the 2007–2008 financial crisis," Journal of Financial Economics, Elsevier, vol. 109(1), pages 272-291.
  21. Arup Daripa & Jeffrey Nilsen, 2011. "Ensuring Sales: A Theory of Inter-firm Credit," American Economic Journal: Microeconomics, American Economic Association, vol. 3(1), pages 245-79, February.
  22. Whited, Toni M, 1992. " Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data," Journal of Finance, American Finance Association, vol. 47(4), pages 1425-60, September.
  23. Yi Wen, 2009. "Input and output inventory dynamics," Working Papers 2008-008, Federal Reserve Bank of St. Louis.
  24. Heitor Almeida & Murillo Campello, 2007. "Financial Constraints, Asset Tangibility, and Corporate Investment," Review of Financial Studies, Society for Financial Studies, vol. 20(5), pages 1429-1460, 2007 12.
  25. Stanley D. Longhofer & Joao A.C. Santos, 2003. "The Paradox of Priority," Financial Management, Financial Management Association, vol. 32(1), Spring.
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