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Economic System Entanglement on Intra-Firm Trade Portfolios: The Impact of Counterparty Credit Ratings on Business-to-Business Credit Dynamics

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  • Desogus, Marco
  • Casu, Elisa

Abstract

In the last five years, Italy has seen a noticeable and steady increase in the supply of trade credit, granting of extensions, and general systemic business-to-business financial support. Focusing on system entanglement, this paper examines the impact in Italy of bank valuations of creditworthiness and credit intermediation on intra-firm trade portfolio dynamics. We further consider the impacts of exogenous shocks to the economy and other disruptive events on payment regularity and risks of insolvency in intra-firm transactions. Mapping portfolio dynamics to a quantum super-system with a Hamiltonian space of phases, we demonstrate that the performance of intra-firm portfolios depends concurrently on bank valuations and that system entanglement allows us to examine the extent to which economic disruptions shift portfolio dynamics from their state of equilibrium.

Suggested Citation

  • Desogus, Marco & Casu, Elisa, 2021. "Economic System Entanglement on Intra-Firm Trade Portfolios: The Impact of Counterparty Credit Ratings on Business-to-Business Credit Dynamics," MPRA Paper 114364, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:114364
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    References listed on IDEAS

    as
    1. Giannetti, Caterina, 2019. "Debt specialization and performance of European firms," Journal of Empirical Finance, Elsevier, vol. 53(C), pages 257-271.
    2. Jess Benhabib & Stephanie Schmitt-Grohe & Martin Uribe, 2003. "Backward-looking interest-rate rules, interest-rate smoothing, and macroeconomic instability," Proceedings, Federal Reserve Bank of Cleveland, pages 1379-1423.
    3. Desogus, Marco & Venturi, Beatrice, 2019. "Bank Crashes and Micro Enterprise Loans," MPRA Paper 114469, University Library of Munich, Germany.
    4. Desogus, Marco & Casu, Elisa, 2020. "What Are the Impacts of Credit Crunch on the Bank-Enterprise System? An Analysis Through Dynamic Modeling and an Italian Dataset," MPRA Paper 114349, University Library of Munich, Germany.
    5. Tor Jacobson & Erik Schedvin, 2015. "Trade Credit and the Propagation of Corporate Failure: An Empirical Analysis," Econometrica, Econometric Society, vol. 83(4), pages 1315-1371, July.
    6. Jelena Zivanovic, 2019. "Corporate Debt Composition and Business Cycles," Staff Working Papers 19-5, Bank of Canada.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    system entanglement; intra-firm trade; portfolio dynamics; credit valuation;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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