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Trade credit: suppliers as debt collectors and insurance providers

Cuñat, Vicente (2006) Trade credit: suppliers as debt collectors and insurance providers. The Review of Financial Studies, 20 (2). pp. 491-527. ISSN 0893-9454

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Abstract

This article examines how in a context of limited enforceability of contracts suppliers may have a comparative advantage over banks in lending to customers because they are able to stop the supply of intermediate goods. Suppliers may act also as liquidity providers, insuring against liquidity shocks that could endanger the survival of their customer relationships. The relatively high implicit interest rates of trade credit are the result of insurance and default premiums that are amplified whenever suppliers face a relatively high cost of funds. I explore these effects empirically for a panel of UK firms.

Item Type: Article
Official URL: http://rfs.oxfordjournals.org/
Additional Information: © 2007 Oxford University Press
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Journal of Economic Literature Classification System: D - Microeconomics > D9 - Intertemporal Choice and Growth > D92 - Intertemporal Firm Choice and Growth, Investment, or Financing
G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General
M - Business Administration and Business Economics; Marketing; Accounting > M1 - Business Administration > M13 - Entrepreneurship
Sets: Research centres and groups > Managerial Economics and Strategy Group
Departments > Finance
Departments > Management
Collections > Economists Online
Research centres and groups > Financial Markets Group (FMG)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 10 Nov 2011 14:13
URL: http://eprints.lse.ac.uk/39412/

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