Get 20M+ Full-Text Papers For Less Than $1.50/day. Subscribe now for You or Your Team.

Learn More →

Trade Credit: Suppliers as Debt Collectors and Insurance Providers

Trade Credit: Suppliers as Debt Collectors and Insurance Providers 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. (JEL: G30, M130, D920) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Financial Studies Oxford University Press

Trade Credit: Suppliers as Debt Collectors and Insurance Providers

The Review of Financial Studies , Volume 20 (2) – Mar 1, 2007

Loading next page...
 
/lp/oxford-university-press/trade-credit-suppliers-as-debt-collectors-and-insurance-providers-dTZFmEHTI8

References (0)

References for this paper are not available at this time. We will be adding them shortly, thank you for your patience.

Publisher
Oxford University Press
Copyright
© The Author 2006. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org.
ISSN
0893-9454
eISSN
1465-7368
DOI
10.1093/rfs/hhl015
Publisher site
See Article on Publisher Site

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. (JEL: G30, M130, D920)

Journal

The Review of Financial StudiesOxford University Press

Published: Mar 1, 2007

There are no references for this article.