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Trade credit contracts

Author

Listed:
  • Klapper, Leora
  • Laeven, Luc
  • Rajan, Raghuram

Abstract

The authors 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. The authors 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 non-financial reasons.

Suggested Citation

  • Klapper, Leora & Laeven, Luc & Rajan, Raghuram, 2011. "Trade credit contracts," Policy Research Working Paper Series 5726, The World Bank.
  • Handle: RePEc:wbk:wbrwps:5726
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Debt Markets; Access to Finance; Investment and Investment Climate; Bankruptcy and Resolution of Financial Distress; Economic Theory&Research;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    NEP fields

    This paper has been announced in the following NEP Reports:

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