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In-kind finance

Burkart, Mike and Ellingsen, Tore (2002) In-kind finance. Discussion paper, 421. Financial Markets Group, London School of Economics and Political Science, London, UK.

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Abstract

It is typically less profitable for an opportunistic borrower to divert inputs than to divert cash. Suppliers, therefore, may lend more liberally than banks. This simple argument is at the core of our contract theoretic model of trade credit in competitive markets. The model implies that trade credit and bank credit can be either complements or substitutes depending on, amongst other things, the borrower's wealth. The model also explains why firms both take and give costly trade credit even when the borrowing rate exceeds the lending rate. Finally, the model suggests reasons for why trade credit is more prevalent in less developed credit markets and for why accounts payable of large unrated firms are more countercyclical than those of small firms.

Item Type: Monograph (Discussion Paper)
Official URL: http://fmg.lse.ac.uk
Additional Information: © 2002 The Authors
Library of Congress subject classification: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
Sets: Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Collections > LSE Financial Markets Group (FMG) Working Papers
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 421
Date Deposited: 20 Aug 2009 12:58
URL: http://eprints.lse.ac.uk/24940/

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