This paper studies the decision of firms to extend trade credit to customers and its relation with their financing decisions. The authors use a novel firm-level database of Chinese SMEs with unique information on market power in both output and input markets and on the amount, terms, and payment...

The paper investigates optimal financial contracts when investment in pledgeable assets is endogenous and not observable to financiers. In a setting with uncertainty, two inputs with different collateral value and investment unobservability, we show that a firm-bank secured credit contract is...

This paper investigates the economic effects on firms' policies of differences in law enforcement. We find that in judicial districts where trials are longer, bank financing is more costly and firms are smaller. However, we do not find any significant relation between law enforcement and firms'...

This paper analyzes the relation between the quality of the legal enforcement of loan contracts and the allocation of credit to households, both theoretically and empirically. We use a model of household credit market with secured debt contracts, where the judicial system affects the cost...

The paper proposes a model of collateralized bank and trade credit. Firms use a two-input technology. Assuming that the supplier is better able to extract value from existing assets and has an information advantage over other creditors, the paper derives a series of predictions. (1) Financially...

This paper analyses the effect of the degree of the legal enforcement of credit contracts on the level of private investment. We use a model of corporate finance with moral hazard and collateralized asset. We introduce in the model a third agent: the government, which is responsible for the...

This paper investigates the interaction between legal institutions and financial arrangements and the effects that these have on corporate decisions and aggregate activity, both theoretically and empirically. In the theoretical part, we develop a two country general equilibrium model with...

This paper investigates the effect of judicial costs on households debt, merging data drawn from a representative Italian sample, the Survey of Household Income and Wealth, with data on the performance of judicial districts. We estimate a probit model to test the hypothesis that th working of...

Assuming that firms' suppliers are better able to extract value from the liquidation of assets in default and have an information advantage over other creditors, the paper derives six predictions on the use of trade credit. (1) Financially unconstrained firms (with unused bank credit lines) take...