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In-kind finance: a theory of trade credit

Burkart, Mike and Ellingsen, Tore (2004) In-kind finance: a theory of trade credit. American Economic Review, 94 (3). pp. 569-590. ISSN 0002-8282

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Identification Number: 10.1257/0002828041464579

Abstract

It is typically less profitable for an opportunistic borrower to divert inputs than to divert cash. Therefore, suppliers 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. Among other things, the model explains why trade credit has short maturity, why trade credit is more prevalent in less developed credit markets, and why accounts payable of large unrated firms are more countercyclical than those of small firms.

Item Type: Article
Official URL: https://www.aeaweb.org/journals/aer
Additional Information: © 2004 American Economic Association
Divisions: Finance
Subjects: H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
Sets: Departments > Finance
Date Deposited: 22 Feb 2017 10:30
Last Modified: 20 Jun 2020 01:06
URI: http://eprints.lse.ac.uk/id/eprint/69548

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