Using data on exogenous liquidity losses generated by the fraud and failure of a cash-intransit firm, we demonstrate a causal impact on firms' trade credit usage. We find that firms manage liquidity shortfalls by increasing the amount of drawn credit from suppliers and decreasing the amount...

We study the economic effects of a clearinghouse that allows a large network of firms to reduce their trade credit exposures and thus potentially lower the risk stemming from interfirm financial linkages. The clearinghouse reduced the gross debt amount in the economy by a sizable 10% of GDP....

The extant literature on trade credit emphasizes its financing role wherein financially sound firms provide trade credit to ease the credit constraints of weaker trading partners. We offer an alternative, though not mutually exclusive, perspective in which trade credit serves as a commitment...

Using data on exogenous liquidity losses generated by the fraud and failure of a cash-in-transit firm, we demonstrate a causal impact on firms' trade credit usage. We find that firms manage liquidity shortfalls by increasing the amount of drawn credit from suppliers and decreasing the amount...

We document that borrowers of banks that received capital support under TARP/CPP significantly increased their quarterly provision of trade credit (accounts receivable) during the crisis by 5.2 percent, while borrowers of other banks did not. The effect is strongest in 2008Q4, and larger for...

The extant literature on trade credit emphasizes its financing role wherein financially sound firms provide trade credit to ease the credit constraints of weaker trading partners. We offer an alternative, though not mutually exclusive, perspective in which trade credit serves as a commitment...

We develop a theoretical model to explain the impact of market power in the product market and financial constraints on trade credit extension. Our model is based on a rational profit maximizing firm operating with a certain level of market power represented by the price elasticity of its...

We explore how trade credit complements cash holdings in product market competition. First, similar to cash to cash flow sensitivity (Almeida, Campello, and Weisbach 2004), we report that trade credit is sensitive to internal cash flows and this sensitivity is moderated by firms' financial...

This paper investigates how social capital, defined by the strength of civic norms and the density of social networks, affects firms’ trade credit risk. The results show that social capital is negatively related to accounts receivables that are unlikely to be collected, suggesting social...