In this paper we integrate the costs of trade finance in a computable general equilibrium (CGE) model to evaluate the trade and output effects of counterfactual policy experiments on costs of and access to trade finance. The costs of financing international trade consist of two components: the...

This paper examines how a borrower's growth affects trade credit decisions. An analysis of publicly traded firm data from nine developed economies indicates that trade credit increases with growth. In some cases, this increase is driven by conditions related to liquidity. Exploring the...

Managing working capital, such as trade credit, is essential for operational sustainability and firm growth in emerging markets. Unfortunately, empirical evidence is lacking on whether corporate governance influences trade credit in India. Our study helps to fill this gap. It also provides new...

Using a dataset of listed non-state-owned enterprises in China, we show that politically connected firms have a greater difficulty in obtaining trade credit than non-connected firms. This credit discrimination against politically connected firms strengthens when firms locate in regions with...

In this study, we examine the association between interim financing and firm performance in an emerging economy. Prior research shows that firms utilize trade credit to boost their operating performance or market valuation. However, recent research on the relation between trade credit as...

There is an extensive literature that links firms’ access to formal financial services and trade credit. This is more relevant for firms operating in financially less developed countries. These firms could potentially face a binding bank loan constraint due to the distortions related to...

In times of crisis, cash and liquidity play an essential role. This paper analyzes the working capital measures over the course of a business cycle. We examine (1) how companies behave in economic downturns regarding their working capital components and (2) whether firms with higher financial...

This study investigates the possible nonlinear relationship between working capital and credit rating. Furthermore, it examines the relationship between the three components of working capital (inventory, accounts receivable, and accounts payable) and a firm's credit rating. Employing data for...

Suppliers are exposed to the default risk of customers when selling goods on credit. Some of this risk can be mitigated if suppliers attain the right to initiate insolvency under bankruptcy laws. However, suppliers’ incentives to safeguard their customer base can deter them from initiating...

We investigate how small businesses respond to liquidity shortages during the financial crisis, focusing on heterogeneity between young and mature firms. With the sudden onset of the financial crisis, many small businesses faced declines in cash flows and liquidity shortages. Using over 4...

We show that production networks are important for the transmission of unconventional monetary policy. Firms with bonds eligible for purchase under the European Central Bank’s Corporate Sector Purchase Program act as financial intermediaries by extending more trade credit to their customers....

This study investigates the nexus of stock liquidity and trade-credit policies in China from 2002 to 2017. The estimates are robust to alternative proxies, various fixed-effects, and the exogenous impact of Chinese split share structure reforms (SSSR) 2005-06 is investigated through the...

This study analyzes the impact of air pollution on the city in which customers are located on the trade credit strategy of their suppliers. Following the framework of environmental stress theory, we hypothesize that suppliers change their trade credit strategy to grant less trade credit to their...

Does banks' zombie lending induced by unconventional monetary policy also allow zombie firms to leverage their trade credit borrowing? We first provide evidence suggesting that - even in Germany - particularly weak banks used the European Central Bank's very long-term refinancing operations...

In this paper, we examine the impact of risk disclosure practices on trade credit. We hypothesize that risk information could reduce information opacity that arises between companies and their suppliers. We collected annual reports for Tunisian listed companies for the period 2008-2013. This...

We exploit the natural experiment of Japan’s opening to international trade to examine how comparative advantage can shape a country’s long-run path towards financial development. In the late 19th century, many of Japan’s prefectures had a natural comparative advantage in silk reeling....

Developments in trade finance in 2020 were largely driven by the impact of the COVID-19 pandemic. Twelve years after the great financial crisis of 2008-09, the issue of trade finance re-emerged as a matter of urgency. While the current pandemic-related crisis did not have a financial cause, one...

The increasingly complex economic and financial environment in which we live makes the management of liquidity in payment systems and the economy in general a persistent challenge. New technologies make it possible to address this challenge through alternative solutions that complement and...

This paper empirically examines how sectoral comovements are correlated with trade credit usage in a multi-region setting. Extending the models in Shea (2002) and Raddatz (2010), we develop a framework that captures the impact of trade credit usage on comovement between sectors within an economy...

Developments in trade finance in 2020 were largely driven by the impact of the COVID-19 pandemic. Twelve years after the great financial crisis of 2008-09, the issue of trade finance re-emerged as a matter of urgency. While the current pandemic-related crisis did not have a financial cause, one...

Access to external finance is a key challenge for the creation, survival and growth of SMEs. This article delves into the “weak funding” handicap of rural small firms (SEs): the access to bank financing and the substitutive role of trade credit for entrepreneurs in rural areas when they...

Previous work has claimed that monopoly power facilitates the provision of credit, since monopolists are better able to enforce payment. Here, we argue that if relationship-specific investments are required by borrowers to establish creditworthiness, monopoly power may reduce credit provision...

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....

Using a large dataset of Korean public and private firms, we show that public listing does not influence the supply of trade credit among firms affiliated with a large business group (chaebol). Meanwhile, non-affiliated public firms provide more trade credit to customers than their private...

Asset growth has been shown to be negatively associated with future returns. Cooper, Gulen, and Schill (2008. Asset Growth and the Cross-Section of Stock Returns. Journal of Finance) argue that an aggregation of all asset growth components as total asset (TA) growth leads to the strongest...

We show that firms exposed to the H1N1 and COVID-19 pandemics curtail trade receivable days for their clients but also face shorter payment periods for their own trade payables. Moreover, firms with lower financial flexibility experience a larger decrease in trade credits; however, firms with...

We study how production networks adapt when natural disasters affect the reliability of a firm in the network. Affected firms extend more trade credit to their customers, especially if these customers are important and would be difficult to replace. The suppliers of affected firms appear to...

We examine the use of trade credit in Western Europe by relying on a sample of 182,296 small firms for the period 2003-2013. Building on information asymmetry theory, we explore how a country’s culture can impact SMEs use of trade credit. We discover that countries’ cultural norms play a key...

Using unique daily data of payment defaults on suppliers in France, we show how the trade credit channel amplified the demand shock that firms met during the COVID-19 crisis. That channel dramatically increased short-term liquidity needs during the first months of the pandemic. A one standard...

We demonstrate that the "predator-prey" metaphor may be well-suited to describe trade finance mechanisms in emerging economies. Having analyzed the dynamics of trade credit in the Polish corporate sector over the period between 1997 and 2014, we found that suppliers of trade credit were smaller,...