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Due to firms' lack of creditworthiness and collateral, banks have imposed loan limits as a result of risk-control regulations in bank financing. As such, loan insurance has emerged as a useful instrument to lift loan limits. To study the joint value of bank loans and loan insurance, this article investigates a supply chain composed of one supplier and one capital-constrained retailer who borrows a bank loan and potentially purchases loan insurance. The analysis reveals that both the supplier and the retailer can benefit from the bank financing with loan insurance in an insurance-cooperation region wherein the supplier is willing to undercut the wholesale price to entice the retailer to buy insurance. Furthermore, in the insurance-cooperation region, worse externalities of the bank loan (i.e., a higher fixed bank fee or a lower initial loan limit) benefits the supplier, whereas worse externalities of loan insurance (i.e., a higher fixed insurance premium or a lower insured loan limit) helps the retailer. Such benefits can lead to a higher order quantity than the capital-abundant one and partially coordinate the whole supply chain. However, when the production cost is low, the supplier and the retailer can encounter a Stackelberg prisoner's dilemma, in which both firms no longer cooperate with each other and both are worse off. Our extended analysis further demonstrates that a bank loan with/without insurance can conditionally outperform trade credit financing and it is better for the retailer to borrow loans from fewer banks, even if there are no fixed bank fees.

This paper investigates the bank financing policy of new small and medium-sized enterprises (SMEs), its evolution and its relevance during early growth stages over their first 10 years. We use a large European panel dataset on early-stage SMEs founded in 2007–2015. The study provides useful advice for practitioners and managers regarding the controversial relationship between debt financing and the life cycle. First, our results reveal the dynamics of firms’ financial behavior relative to age. The relation between debt financing and entrepreneurial firms’ growth is remarkably unstable over time. Debt is positively related to firm startup stage growth and decreases over time. Second, debt financing is significantly related to firm productivity over time and the probability of bankruptcy. We perform additional analyses to expand our baseline results and suggest future research directions.

A common corporate cash management strategy is to delay payments owed to suppliers. We examine whether buyers pay suppliers faster in response to a recent regulatory change in the United Kingdom that mandates the public disclosure of buyers’ payment practices. We find that after the regulatory change, UK firms subject to this regulation shortened their payment periods relative to several control samples of firms that were not subject to the regulation. In cross-sectional tests, we predict and find that this shortening of the payment period is attenuated for firms that are less able to bear the costs of paying suppliers faster. Specifically, we find that the reduction in the payment period is smaller for buyers that (i) have longer operating cycles, (ii) depend more heavily on trade credit as a source of external financing, and (iii) pay dividends. In supplemental tests using proprietary data, we find that buyers subject to this regulation reduced their trade credit that is overdue by 30 days or more. However, this reduction is partially offset by an increase in the trade credit that is overdue by less than 30 days. Our findings are important in light of the ongoing debate in other regimes (e.g., the United States) on whether to require additional disclosures of trade credit.

The research problem We examine the association between financial reporting quality and trade credit capital for a large sample of European private firms. Furthermore, we explore how information asymmetry and credit rationing moderate the link between financial reporting quality and trade credit financing. Motivation Trade credit constitutes one of the most important sources of financing for private firms. Nevertheless, prior research has provided few and inconclusive evidence of the link between financial reporting quality and private firms’ trade credit capital. Our study is further motivated by the recent calls for more research on the determinants of the relation between financial reporting quality and trade credit financing (e.g., Hope & Vyas ( 2017 )). The test hypotheses H1: There is a positive association between financial reporting quality and private firms’ access to trade credit capital. H2a: The relation between financial reporting quality and private firms’ access to trade credit capital is more positive when information asymmetry and uncertainty about future cash flows are high. H2b: The relation between financial reporting quality and private firms’ access to trade credit capital is more positive when credit is rationed. Target population Policymakers who seek to improve accounting standards and customize them to the financial reporting needs of private firms and their stakeholders (e.g., international financial reporting standards for small and medium-sized enterprises), private firm managers, and private firm suppliers. Adopted methodology Ordinary Least Squares regression analyses. Analyses We examine the association between financial reporting quality and trade credit financing for a large sample of private firms from Europe’s five largest economies, i.e., France, Germany, Italy, Spain, and the United Kingdom. Our sample period spans from 2010 to 2016. We use the Amadeus database as our source of data. We regress trade credit capital on three proxies for financial reporting quality. In cross-sectional analyses, we repeat our main estimations by interacting our proxies for financial reporting quality with proxies for information asymmetry and credit rationing. Findings We find strong evidence that high-quality financial reporting is associated with more trade credit financing in private firms. We further show that the positive relation between high-quality financial reporting and trade credit is stronger when information asymmetry and uncertainty about future cash flows is high as well as when credit is rationed. These findings suggest that suppliers complement insider communication channels and financial reporting quality and provide a more nuanced understanding of the interplay among information asymmetry, credit rationing, and trade credit financing.

How does access to debt markets affect firms' provision of trade credit? Existing literature focuses on the effect of financial crises and shows that access to bank loans allows firms to provide more trade credit. However, outside of crises, increased access to debt could strengthen a firm’s product market power and reduce the need for them to provide trade credit to major customers. We test this conjecture by exploiting the staggered passage of anti-recharacterization laws as exogenous shocks to firms' access to debt markets and using hand-collected data on the amount of trade credit provided by U.S. public firms to their individual customers. We show that better access to debt reduces firms' extension of trade credit to their major customers, particularly for financially healthy customers with top credit ratings. Consistent with the argument of product market power, we find that firms affected by the laws expand their customer base and deepen relations with riskier customers. The law-induced decline in trade credit leads to reductions in investment and increased borrowing by customer firms. It also leads those customer firms to provide less trade credit to firms further downstream.

We test the existence of the balance sheet channel of monetary policy in a middle-income country. Firm-level data scarcity and quality, in such a context, make the identification of this channel a steep challenge. To circumvent this challenge, we use panel instrumental variables estimation with measurement error to analyze the financial statements of 58 500 Moroccan firms over the period 2010-2016. Our analysis confirms the existence of this channel. It shows that monetary policy has a significant impact on small and medium enterprises' access to banks' financing, and that firm-specific variables are key determinants of firms' financing decisions.

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 higher operating flexibility adjust their trade credits downward more during the pandemics. Further investigation indicates that, on average, firms’ curtailing of trade credit to their customers enhances shareholder value during the H1N1 pandemic but decreases shareholder value during the COVID-19 pandemic. The differential value effects could be explained by the government funding support and the resilience of the debt market during the latter pandemic. Overall, our evidence highlights the precautionary motive of firms’ trade credit policy in the presence of pandemics.

Our study examines the determinants and consequences of reverse factoring. Despite the increasing popularity of reverse factoring, neither US GAAP nor IFRS offers any guidance for the financial reporting of obligations owed under reverse factoring. Using a sample of UK firms from 2018 to 2020, we find that a buyer is more likely to adopt reverse factoring if it is larger, uses more trade credit, depends more on external financing, and has lower return volatility. In our tests of consequences, we find that, compared to firms that do not use reverse factoring, the average firm that adopts reverse factoring takes 10.5 days longer to pay its invoices, pays 12.2% fewer invoices within 30 days, and pays 13.6% more of its invoices later than 60 days. We also document several favorable accounting outcomes for firms that have adopted reverse factoring, such as reporting a higher ROA, higher profit margins, lower ROA volatility, and lower return volatility than firms that have not adopted reverse factoring. Our study contributes to the nascent literature on reverse factoring by empirically building a profile of the type of firm that adopts reverse factoring.

We develop a trade credit model that captures the practices followed by suppliers issuing credit to retailers. We model the problem as a Stackelberg game where the supplier announces the trade credit contract terms, and the retailer responds by choosing the optimal order quantity. We show analytically how the traditional trade credit contract gives rise to the supplier's problem of over-ordering by retailers. This over-ordering leads to certain benefits, like boosting expected product sales and increasing supply chain efficiency. The associated downside is that retailers tend to place unreasonably large orders. As per the trade credit contract, the supplier is liable to take back the unsold inventory bought on credit. This exposes the supplier to the risk of excessive buy-back or returns and causes a high inventory build-up at his end. The ongoing COVID-19 has added to the woe of suppliers as the pandemic has severely plummeted customers' purchase causing returns from retailers to suppliers to increase further. In this work, we incorporate return policy in trade credit model to control the problem of over-ordering by retailers. Managers can leverage our model to understand the impact of restricting return percentages. Accordingly, they can design the trade credit contract. Given the supplier's return policy, financially constrained (FC) retailers can use our model to obtain optimal inventory levels.

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 deviation higher ratio of net debt to suppliers over sales increases the probability of payment default by roughly a third in sectors that were forced to shut down. This effect is extremely heterogeneous across sectors as well as across firms, depending on financing constraints. Understanding the cyclical trade credit dynamics is central for policy makers seeking to enable illiquid but solvent companies to remain afloat until revenues recover.

This paper empirically examines how sectoral co-movement 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 co-movement between sectors within a country and cross countries separately. Using the Multi-Regional Input-Output Table developed by Asian Development bank, we assemble a dataset consisting of 14 manufacturing industries for 53 economies. We provide empirical evidence that trade credit linkage is an influential channel for both the domestic and cross-border shocks to propagate and to create a more profound impact in industries around the globe. We find the impact of domestic credit chain on sectoral co-movement is twice as strong as the international ones. We further examine the time trend of this relationship, and find that from 2000 to 2018, the positive relationship between the intensity of trade credit usage and sectoral correlation decreases. We posit that this could be due to a more diversified global trade pattern changes during these two decades.

The inventory and supply chain management literature barely mentions any use of capital efficiency metrics, such as Return-on-Investment (ROI), and their impact on ordering decisions and inventory investments. Our work will offer an understanding of how such metrics, like ROI, affect orders at a stand-alone single stocking stage under demand uncertainty (newsvendor-like models) or within bilateral supply chains of a supplier and retailer interacting with the use of a trade-credit-contract. The ROI-driven newsvendor without any capital constraints offers similar insights to earlier Economic-Order-Quantity work. The newsvendor orders less than the traditional quantity. The insights carry through to model extensions that account for capital constraints, bankruptcy risks and costs. The analysis of the trade-credit contract with an ROI-optimizing retailer continues to support the low-interest rate of such contracts, but interestingly shows that the retailer now orders more than under profit optimization. As a result, the overall supply chain efficiency improves, and the retailer appropriates a larger percentage of the chain profit.

We study how wholesalers assess borrower credit risk and extend trade credit to retailers in economies where formal market institutions, such as financial reporting systems, auditing, and courts, are nonexistent or function poorly. Using the setting of a large market in India, we find that community membership plays a strong role in the access to credit. Wholesalers are more likely to provide trade credit and to offer less restrictive credit terms to within-community retailers, are more lenient when these retailers default, and are less likely to experience defaults from them. Our analyses suggest that this cooperation between same-community wholesalers and retailers is achieved through an indirect reciprocity mechanism, which is sustained by within-community information flows and provides insurance against income shocks.

Many retailers, while receiving trade credit from their suppliers, are willing to provide trade credit to their customers for certain fashion goods and electronic products. Usually, customers' delay payment term is longer than that of the retailer, which is ignored in the existing literature. In this paper, we study such deteriorating-items supply chain where the supplier offers flexible two-part trade credit allowing the retailer to pay part of purchase cost at early-payment term with discount and the rest with no discount at later-payment term; meanwhile, the retailer provides one-part trade credit allowing the customers to delay payment. We discuss the retailer's optimal replenishment and payment decisions where downstream credit periods are not limited to less than upstream early-payment terms. Numerical examples and sensitivity analysis serve to verify theoretical results and support three critical managerial insights. First, the retailer can extend downstream delay payment terms to get more profit, especially for the young generation's products. Second, when the downstream credit period is longer than the upstream early-payment term, it makes economic sense for the retailer to order items more frequently. Finally, the retailer would take more benefits from flexible two-part trade credit contracts on longer shelf-time products.

Costello, Down, and Mehta (2020) trace their slider intervention to deviations from the credit line amount recommended by a credit scoring model. The deviations are followed by larger delinquency declines and bigger sales orders, and Costello et al. interpret these results using discretion-based theories. However, incremental deviations are concentrated on newer clients rather than those the lender has accumulated soft information about. Deviations also appear larger for public than private borrowers. My discussion evaluates whether these results align with discretion-based theories, and explores alternative interpretations based on salience and unique aspects of the trade credit setting. Differences in interpretation aside, the evidence is informative about technological advances in commercial lending. I conclude with an overview of several recent advances and discuss the implications for lending research.

We develop a theoretical model to explain the impact of market power in the product market and financial constraints on trade credit extension. Our model is based on a rational profit maximizing firm operating with a certain level of market power represented by the price elasticity of its product and with customers presenting a certain degree of financial constraint which reflects in their trade credit term-sensitivity of demand. Besides showing the detailed deduction of this model using a non-linear programming approach (Kuhn-Tucker) we show the trade-offs that firms face to increase their profit by selling on credit and compare its implications to the trade credit literature. We further confirm our findings empirically using Compustat quarterly data for 8,602 US firms drawn from 2004 to 2010.

This study finds that even small unexpected supply shocks propagate downstream through production networks and are amplified by firms with short-term financial constraints. The unexpected 2011 increase in the tax on imports purchased with foreign-sourced trade credit is examined using data capturing almost all Turkish supplier-customer links. The identification strategy exploits the heterogeneous impact of the shock on importers. The results indicate that this relatively minor, non-localized shock had a non-trivial economic impact on exposed firms and propagated downstream through affected suppliers. Additional empirical tests, motivated by a simple theory, demonstrate that low-liquidity firms amplified its transmission.

This paper examines how trade credit demand and supply are determined in Korea, where large business groups are dominant in most of the segments and hierarchies of many industries. In particular, we investigate the effects of business group affiliation on trade credit financing, finding that a firm’s affiliation with a large business group has a positive effect on trade credit demand but a negative effect on trade credit supply. The results suggest that the extra bargaining power of large business groups enables group affiliates to provide substantially less trade credits but to demand more when they face financial constraints. However, we do not find evidence that trade credit financing functions as an instrument to subsidize member firms through the internal capital markets within a business group. These findings explain the effects of business group affiliation on trade credit demand and supply in short-term debt markets from the perspective of the unique characteristics of the Korean economy.

Using firm-level destination country-specific export data and bank branch data from China, we find that foreign banks can significantly promote firms’ export toward the destination country where the banks are originated from. Our findings are robust after addressing different types of endogeneity concerns. Further evidence reveals the mechanism. Foreign banks promote local firms’ export more in sectors in need of trust, promote ordinary export strongly but has almost zero impact on processing with assembly, and promote export more when a destination country is culturally more distant from China. Taken together, we conclude that foreign banks serve as trust providers in promoting local firms’ export, rather than via financial services such as enhanced credit supply and trade credit.

As the Covid-19 pandemic hits economic activity, the vulnerabilities of longer and more geographically extended trade credit chains are coming to the fore, especially those related to international trade. While risk mitigation is available from financial intermediaries, the bulk of the exposures associated with supply chains is borne by the participating firms themselves, through inter-firm credit. Given the prevalence of the US dollar in trade financing, measures such as central bank swap lines that ease global dollar credit conditions may cushion the impact of the pandemic on global value chains.

Monetary and financial policies that lower the cost of credit for working capital in a currency outside of its country can provide the impetus for that currency to be used in international trade. This paper shows this in theory, by exploring the complemen-tarity in the currency used for financing working capital and the currency used for invoicing sales. Financial policies by a central bank can jump-start the use of its cur-rency outside a country’s borders. In the data, the creation of 38 swap lines by the People’s Bank of China between 2009 and 2018 provides a test of the theory. Signing a swap line with a country is significantly associated with increases in the use of the RMB in payments to and from that country in the following months.

How do different types of debt influence firm credit risk? This paper sheds new light on this issue by decomposing the leverage ratio into market debt, bank debt, and trade credit leverage ratios by balance sheet account type classification; and short-term debt and long-term debt leverage ratios by debt maturity classification. The pecking order theory (Myers & Majluf, 1984) suggests that these debt types differ in terms of the information asymmetry. Therefore, their effects on credit risk might be distinct. We find that debt to financial markets (commercial papers, bonds, etc.) is more positively correlated with the next period's CDS spread than other debt types. CDS spread also reacts positively to bank debt leverage and responds positively to trade credit leverage only for firms in competitive sectors. With regard to maturity classification, the CDS market attributes more credit risk to long-term debt than short-term debt. We also document that the CDS market tracks firms’ accounts receivable. Our findings are also robust when we control for the credit quality of firms via credit ratings.

English Abstract: Cross-border trade credit is credit extended by exporters and importers and makes up a considerable share of the trade finance instruments used in global trade. We use quarterly data on cross-border trade credit recorded in the International Investment Position at the International Monetary Fund and examine its effects on trade flows during the 2008-09 global financial crisis. Unlike previous studies, we find not only that the effects of trade credit are positive on average, but also that these effects are more pronounced during the crisis. Specifically, we find that the decrease in trade credit explains 8.9%-10.5% of the trade collapse during the crisis. In addition, we find that the effects of trade credit on trade flows are more pronounced during the crisis for countries with a low level of financial development in the pre-crisis period.

We examine how economic policy uncertainty (EPU) impacts on Chinese firm’s trade credit. We find a significant negative relationship between EPU and both firm’s account payable (receiving) and account receivable (offering). These results were more pronounced for non-state-owned enterprises, firms located in high marketisation and high trust regions, and survived after the endogeneity tests.

This paper shows that customer CEOs’ short-term equity incentives impose a negative spillover effect on the real investment decisions of their supplier firms. Specifically, we find that CEOs’ short-term incentives, measured by CEOs’ vesting equity in a given quarter, are negatively associated with suppliers’ investments in R&D expenditures in the same quarter. The reduction of suppliers’ R&D is not fully explained by the decline in customers’ own R&D or capital expenditures resulting from customer CEOs’ short-term incentives. Furthermore, we find that customer CEOs’ short-term incentives have a less pronounced effect on reducing suppliers’ R&D investments when the customers have less bargaining power, are younger, are considered more trustworthy, or are monitored by blockholders. The effect is also less pronounced when the suppliers have higher capital redeployability. At last, we show that supplier firms also reduce their trade credit offering and inventory cost. Taken together, we argue that customer CEOs’ myopic behavior, induced by their short-term incentives, reduces suppliers’ incentive to commit to relationship-specific investments.

We investigate the systemic importance of U.S. industrial firms and analyse the firm-specific characteristics that identify systemically important industrials. We compute two firm-specific measures of systemic risk for 367 non-financial corporations and confirm that industrial firms are both vulnerable to systemic shocks and contribute to system-wide risk. Systemic risk measures exhibit substantial variation across firms and over time. Debt and trade credit are related to both dimensions of systemic risk, while a range of other firm characteristics are associated with systemic risk in at least one direction. The differences between the dimensions of risk and their associated characteristics underline the importance of analysing both measures of risk. Finally, we report some striking differences vis-a-vis the extant literature on banks and non-bank financials.

Despite the importance of trade credit as a source of financing there is a significant and persistent decline in this form of short-term borrowing and lending over the 1979 to 2018 interval. We find that the median firm’s accounts receivable ratio decreased by 52 percent while accounts payable ratio fell by 47 percent. The decline in firms’ trade credit over time is systematic as it is present in most industries and sub-samples of firms classified on different characteristics. Further, firms’ trade credit ratios are significantly less than predicted ratios based on firm-specific characteristics and industry factors and this deficiency is becoming larger, that is, more negative, over the sample period. The pattern in trade credit ratios persists after controlling for changes in macro factors implying that the declining trade credit ratio represents a puzzle.

Large lending in the banking industry has sparked concerns about banks’ efficiency performance, particularly as it related to their credit risk as trade credit, provided by large, creditworthy firms. We provide evidence at a rather neglected issue regarding the impact of large lending on banks’ efficiency using production, cost and profit stochastic functions. A unique dataset was constructed concerning all USA banks collected from the Statistics on Depository Institutions report compiled by the Federal Deposit Insurance Corporation. Our sample contains 7960 banks and tracked yearly for the period 2010 -2017, creating an unbalanced panel of year observations. An econometric framework based on nested non-neutral frontiers, was developed to estimate the influence and the decomposition of large lending on the three banks' performance aspects. Moreover, different types of frontiers aiming at the cost, profit, and production side have been investigated and the associated elasticities have been calculated. The empirical findings reveal that the large lending plays a crucial role on banks' technical efficiency. Variations among different frontier models, type of bank and size, banks’ ownership structure and macroeconomic conditions appear to be present. By considering all Capital Adequacy Asset Quality Management Earnings Liquidity parameters, we notice that banks’ financial strength affects banks’ efficiency. Some policy implications are derived based on the empirical evidence supporting a safer and sounder banking system can be emerged as banks finance large firms, increasing the willingness of people to save and bank’s attitude to finance profitable investments projects that rise firm’s value and promote economic growth.

This paper analyze the survival of developing countries exports using the methodology developed by Rajan and Zingales (1998). An exporter faces multiple obstacles when entering new markets: imperfect information about the market, quality requirements of the importing countries, trade and marketing costs etc. Only firms with sufficient financial resources and high productivity can enter the international market. (Melitz 2003; Chaney 2005; Berman 2009). Therefore, one can expect exporters from a country with a well functioning financial markets to survive longer than exporters from a country where the financial markets are underdeveloped. In particular, we check if the exports of industries heavily dependent on external finance survive longer in foreign markets when produced in countries with developed financial system., Cet article étudie la durée de survie des exportations de pays en développement à destination des pays de l'OCDE. L'article utilise la méthodologie présentée par Rajan et Zingales, 1998. Pour pénétrer le marché international, les exportateurs, font face à de nombreux obstacles, information imparfaite, coûts fixes d'entrée, coûts de marketing, exigence des distributeurs dans les pays importateurs etc. Seules les firmes les plus productives et bénéficiant d'un accès suffisant à des ressources financières sont à même de se lancer sur ces marchés. Ainsi on peut s'attendre à ce que les exportateurs dans des pays avec des systèmes financiers développés survivent plus longtemps. En particulier nous mettons en évidence l'effet positif du niveau de développement financier du pays exportateur sur la durée de survie des exportations, en considérant les industries largement dépendantes en finances externes.

Korean Abstract: 본고는 북한이탈주민에 대한 설문조사를 통해 북한 비공식금융의 실태를 파악하는 한편 타국과의 비교를 통해 그 발전 정도를 평가한 것이다. 북한이탈주민에 대한 조사결과 상거래신용, 금전대차, 계(契) 등이 대표적인 비공식금융 활동으로 파악되었으며, 이 가운데 한 가지라도 경험한 북한 주민은 27.8%로 이에 대한 경험이 아직 부족한 것으로 나타났다. 아울러 북한 주민은 그 규모 면에서 현금보관액, 상거래신용, 금전대차, 계의 순으로 비공식금융 자산을 보유하고 있었다. 주민들의 비공식금융 유형별 특징을 보면, 상인들 간에는 상거래 신용이 주된 금융수단으로 활용되고 있었으며, 금전대차는 주로 지인들 간에 담보보다는 신용에 기반하여 거래되고 있었다. 금전대차의 목적은 장사 목적이 주를 이루었고 산업생산 목적은 매우 낮게 나타났으며, 이자부 거래의 평균금리는 월 13.1%로 조사되었다. 북한의 비공식금융의 규모는 페레스트로이카 초기(1986년)의 구소련보다는 큰 수준이었으나, 중국의 경제개발 본격화 시기(2001년)나 일부 개발도상국(페루, 베트남)의 1990년대 후반 시기에 비해 작은 수준으로 평가된다. 또한 비공식 금융거래의 목적은 상거래활동 지원이 대부분이고 생산자금 비중은 매우 낮아 생산활동의 활성화에는 큰 도움이 되지 못하고 있는 것으로 나타났다. 아울러 북한의 금융중개의 주체는 대출중개인 또는 계(契)의 수준에 머물러 비공식 금융기업(비공식 저축·대부기관)으로까지는 발전하지 못한 것으로 판단된다. 본고는 비공식금융 활동을 정량적으로 파악하고 분석했다는 점에서는 진일보한 측면이 있으나 북한이탈주민에 대한 설문조사가 갖는 적은 표본 수, 지역적 편향, 회고적 조사로 인한 정확성 제한 등의 문제를 여전히 극복하지 못한 한계가 있어 해석에 유의할 필요가 있다. English Abstract: This study aims to grasp the current state of informal finance in North Korea through a questionnaire survey of North Korean defectors, and to evaluate the degree of development through comparison with other countries. The results of the survey of North Korean defectors show that trade credit, lending by individual money lenders, rotating credit & savings association were the major informal financial activities, while 27.8% of defectors have experienced at least one of these activities, showing that North Koreans still lack sufficient experience in them. In addition, North Koreans possessed informal financial assets through the following means, in the order of largest to smallest: cash holdings, trade credit, lending by individual money lenders, rotating credit & savings association. Looking at the characteristics of residents' informal financing types, trade credit was used as the main financial means among merchants, and individual money lenders issued loans mostly to acquaintances based on credit rather than collateral. The purpose of the lending by individual money lenders was mainly for distribution businesses, while lending for industrial production was rare; the average interest rate of interest-bearing transactions was 13.1% per month. North Korea's informal financing was larger than that of the former Soviet Union in the early days of perestroika (1986), but relatively small compared to China in the early days of full-scale economic development (2001) or some developing countries (Peru, Vietnam) in the late 1990s. It was also found that most informal financial transactions were to support commercial activities, while only a small proportion was used for production, meaning that informal financial transactions were not able to play a major role in vitalizing production. In addition, North Korea's financial intermediaries appear to have remained at the level of loan brokers or rotating credit & savings association and have failed to develop into informal financial companies(informal savings & loan institutions). Although this paper represents a step forward in that it quantitatively identifies and analyzes informal financial activities, readers should be aware that it still fails to overcome problems such as the small number of samples, regional bias, and accuracy limitations inherent in retrospective surveys of North Korean defectors.

Problem Definition: Trade credit studies pay little attention to firms’ late payment behavior due to the lack of extensive panel data. From the perspective of industry structure, this paper is the first to empirically study firms’ trade credit late payment. Academic/Practical Relevance: While the trade credit research has focused on credit issuance and terms of suppliers, the information content of trade credit is incomplete without understanding payment behavior of customers. Methodology: We acquire a unique trade credit payment dataset from Dun & Bradstreet (D&B) Global Trade Plan to study how industry structure shapes the way firms delay payments to their suppliers. Results: We show that a firm’s late payment behavior is positively associated with market power and downstream cost-shifting, and firms strategically choose to whom and for how long to delay their trade credit payment. We employ an instrumental variable approach to establish causality and conduct several robustness checks. We also examine several moderating factors, including a firm’s capacity to borrow and speed to borrow, inventory turnover, and prior contract breach record. Managerial Implications: In addition to suppliers’ trade credit offer, our findings uncover the other half of trade credit practice—customers’ payment behavior. It suggests that managers of supplier firms should be cautious about late payments when they make trade credit contracts with customers. Regulators should also note that suppliers are in a weak position in terms of demanding payments compared to secured lenders such as banks.

We examine how trade credit complements cash holdings in product market competition and find empirical support for this view. First, in line with the redistribution view of trade credit, we show that trade credit is sensitive to cash flows. Second, using an augmented Faulkender and Wang (2006) model, we report that stock market values both cash holdings and trade credit. Third, we identify that three common factors, namely, firms’ financial strength, market power, and relationship specific investments, moderate the valuations of cash and trade credit. For robustness, we use the U.S. import tariff reductions as exogenous shocks to product market competition and help establish causality between trade credit practice and competition. Overall, our findings strongly support the notion that corporate cash holding and trade credit decisions are intertwined. Managers be mindful of the trade-off between holding cash vis-a-vis distributing liquidity via trade credit.

Do financial crises have an impact on trade flows via a shock to corporate risk or to bank risk? Focusing on Italy’s exports during a period characterized by both the global financial crisis and by the sovereign debt crisis, we exploit the prediction of standard trade models according to which financial shocks should be magnified by the time needed to ship a good to the importer’s country and by sector-level financial vulnerability. We also use bank-pair data on Italian banks’ assets and liabilities vis-a-vis their foreign bank counterparts in a specific country to construct proxies for the availability of trade finance in a given market. We find evidence of a negative impact of financial shocks on exports, especially to more distant countries and in more financially vulnerable sectors. The main channels seem to be mainly related to an increase in corporate risk (reflecting shocks to bank finance and to buyer-supplier trade credit), while the ‘contagion effect’ of shocks stemming from bank risk seems to be much less significant.

This paper investigates whether social security contributions affect corporate financing decisions. Treating the 2011 Social Insurance Law in China as a quasi-natural experiment, our difference-in-differences framework utilizes two-dimension variations: initial social security contribution rates across firms (i.e., high relative to low) and year (i.e., before and after 2011). We find that more social security contributions lead firms to decrease capital structure, particularly for firms with greater labor intensity and tighter financial constraints as well as those located in areas with greater fiscal pressure. Furthermore, consistent with the financial distress hypothesis, a firm’s operating leverage and profitability volatility increase, and the supply of trade credit decreases. Specifically, we exclude several alternative explanations, including firms’ other motivations and creditors’ strategic behavior. Our findings demonstrate that firms tend to choose conservative financing policies to partially mitigate the likelihood of financial distress caused by increasing social security contributions.

We examine the impact of policy uncertainty on trade credit. We document a decline (increase) in accounts payable and receivable during periods of high (low) policy uncertainty. The relation is robust and holds after controlling for endogeneity, economic and political uncertainties, and the Great Recession. Additionally, the impact of policy uncertainty on trade credit is long term, affecting short-term borrowing and lending in the following year as well. The reduction in trade credit during periods of high uncertainty is driven by a decrease in supply; firms that are most likely to lend, reduce credit to customers during these periods. There is no evidence that firms with access to alternative sources of funding reduce their borrowings during periods of high policy uncertainty. For the subset of firms that have limited access to external funds, there is an increase in accounts payable in high uncertainty periods suggesting that these firms view trade credit as a substitute source of financing during difficult times. Finally, industry competitiveness impacts the relation; suppliers (customers) in competitive industries have higher (lower) levels of accounts receivable (payable) during high uncertainty periods.

How does bank distress impact their customers' probability of default and trade credit availability? We address this question by looking at a unique sample of German firms from 2000 to 2011. We follow their firm-bank relationships through times of distress and crisis, featuring the different transmission of bank distress shocks into already weakened firm balance sheets. We find that a distressed bank bailout, which is subject to restructuring and deleveraging conditions, leads to a bank-induced increase of firms' probabilities of default. Moreover, bailouts tend to reduce trade credit availability and ultimately firms' sales. We further find that the direction and magnitude of the effects depends on firm quality and the relationship orientation of banks.

We document a negative causal relationship between changes in the analyst coverage of buying firms and their use of trade credit, thus establishing an "information production" hypothesis of trade credit usage. We show that firms use trade credit to a greater extent when the extent of asymmetric information facing external financiers (such as banks) about buying firms increases, thus increasing suppliers' information advantage with respect to such external financers. We establish a causal relationship between trade credit use and analyst coverage using two different identification methodologies: first, using exogenous changes in the analyst coverage of firms following brokerage house mergers; and second, using an instrumental variable (IV) analysis. Our cross sectional analyses provide further support for the information production hypothesis. First, increases in trade credit usage following reductions in analyst coverage are smaller for firms with closer established lending relationships with banks and those incurring higher audit fees. Second, increases in trade credit usage following reductions in analyst coverage are larger for financially constrained firms and those headquartered in regions characterized by a higher extent of social capital.

Paper considers the impact of cash, debt, trade credit and equity financing on firm efficiency. Paper argues that 1) cash holding negatively affects firm efficiency, 2) debt and trade credit have both positive and negative impact on efficiency, 3) debt and trade credit are more conducive to increasing efficiency than cash holding, 4) trade credit is more conducive to increasing efficiency than debt and 5) the strongest positive impact on efficiency is provided by equity financing.

Trade credit is an important source of short-term financing and an integrated part in supply contracts. Although a number of theories have been proposed on how trade credit could improve supply chain efficiency, causal studies on the impact of trade credit on operational decisions are scarce. In this study, we examine the impact of trade credit on inventory decisions using an empirical strategy that leverages (i) an exogenous shock imparted by the French government’s intervention to impose a ceiling on trade credit duration, (ii) a triple difference-in-differences identification strategy, and (iii) synthetic controls (SCs). By considering the 60-day ceiling coverage and SC construction requirements, we identify four French retail sectors as our main sample. Among them, in the postregulation period, the hardware retail sector firms on average exhibited a significant 16% decline in trade credit usage. Correspondingly, these firms also displayed a significant 11% decline in inventory level. In the remaining three sectors, we found mixed results in the main sample. All the four sectors, however, show consistent support for a causal link between trade credit and inventory in a subsample compiled using a stringent 90-day ceiling criterion. Collectively, our findings offer direct evidence that trade credit is an indispensable financing source for inventory procurement. Finally, in the postregulation period, the hardware retailers exhibited a 15.5% decline in revenue and 3.5% reduction in gross profit. This cautions policy makers that regulations limiting the use of trade credit may have unintended consequences on downstream firms, and may harm overall supply chain efficiency. This paper was accepted by Vishal Gaur, operations management. Funding: This work was supported by Indiana University Bloomington and the London Business School. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2022.4600 .

With African firms highly rationed out of credit markets, trade credit has become an important source of financing. Yet, not much is known about the drivers of trade credit demand and supply in the continent. This study fills this research gap by estimating trade credit demand and supply for a panel of listed firms in 19 African countries over a period of 29 years. Using dynamic and static structural equation modelling, the study finds short-term leverage, firm size and past experience in trade credit as simultaneous determinants of trade credit demand and supply. The study further finds turnover (inverse relationship) as the unique determinant of trade credit supply, and cash flows (inverse effect), raw material inventories (inverse effect) and investment in current assets (positive effect) as the peculiar determinants of trade credit demand. These determinants are robust to the control for endogeneity and non-separability, and to the inclusion of lagged value of the dependent variables, industrial classification and time dummies. These findings have important implications for trade credit policy in Africa.

We propose a price-only trade credit model in an overconfident supply chain with a price-setting newsvendor. Stackelberg equilibrium in different scenarios are derived, respectively. The retailer’s pricing power prevents the manufacturer from squeezing all profit. When the manufacturer knows the retailer holds a different overconfidence parameter, the optimal wholesale price decreases in the manufacturer’s overconfidence, while when the manufacturer believes that the retailer holds the same overconfidence parameter as it, this monotonicity may not be valid. Bilateral overconfidence may partially coordinate the supply chain. Retailer’s strategic default induces a higher wholesale price, while its impacts on the equilibrium retail price and order quantity depend on the bankruptcy cost coefficient. We present the impacts of the manufacturer’s capital constraint and retailer’s risk-aversion.

Despite ultra-easy monetary policy in US, Eurozone and Japan, lending interest rate remains higher than expected profitability. However minimal lending interest rate in advanced economies diminishes the Central Banks’ ability to stimulate economic growth. Paper argues that high interest rate is caused by interest rate rigidity, and to decrease interest rate rigidity paper suggests a shift from debt-based to trade-based financing where banks extend trade credit rather than loan, in particular, banks purchase goods, on the client's request, from a third party and resell it to client in installments at an agreed mark-up.

This study shows that trade creditors extend a negative response to hedge fund activism. Relative to control firms, target firms' accounts payable decreases by 28%, post activist intervention by hedge funds. This reduction is due to supply-side factors, highlighting suppliers' expropriation concerns. The study provides novel evidence that the repercussions of hedge fund activism extend beyond the formal debtholders, and informal debtholders such as trade creditors are not an exception. Further, target firms also offer lower trade credit to their customers after hedge fund activism. Trade receivables decrease by 12% relative to control firms. The findings suggest that activism-induced changes in operating cash flows, cash holdings and dividend payments potentially account for this reduction in trade receivables.

Firms are connected through the production network. Meanwhile, the production linkages coincide with financial linkages owing to delays in input payments that amount to a form of trade credit. In this paper, I investigate the roles of these interconnected production and financial linkages in the propagation of financial shocks. Empirically, I find, based on the input-output matrix and loan data in the U.S., that the upstream propagation of financial shocks is stronger than their downstream propagation. Theoretically, I elaborate a model that can capture this pattern of shocks, of which trade credit is an important component. Moreover, the model reflects the fact that trade credit attenuates the propagation of financial shocks, through the sharing of liquidity, when shocks are relatively small and amplifies their propagation, through illiquidity contagion, when shocks are relatively large.

In practice, trade credit (TC) is often offered in a contract that stipulates a single interest rather than an interest menu contingent on the loan amount. This paper offers a new explanation for the provision and use of TC by financially resourceful firms by accounting for special the form of TC contract and buyer competition in the supply chain. We solve a dynamic game between a supplier and two buyers who have access to a perfect capital market and compete in a Cournot game in the downstream market. We show that the TC contract incentivizes the buyer to order more than the first-best order quantity. Thus, the buyers use TC for purely strategic purposes: to commit to competing aggressively. The supplier offers TC this way to induce the buyers to over-order and increase demand. Surprisingly, despite its deadweight agency cost, strategic TC may create value for the buyers and the entire supply chain. This finding is opposite to the well-known result that strategic debt always destroys value and make the borrowers worse off. It is made possible by the effect of TC on the supplier-to-buyer interaction that is unique to a supply chain. Specifically, strategic TC may allow the buyers to enjoy a lower wholesale price, thus making them better off by reducing the purchasing cost. The over-ordering distortion of TC mitigates the under-ordering problem caused by double marginalization, thus improving the total welfare of the supply chain. Our results imply that the supplier should enhance its production cost reduction effort to take advantage of TC and unlock substantial profit increase. The buyers should also leverage the benefit of TC when improving the consumers' willingness-to-pay (WTP). Their payoffs may be maximized at a moderate consumers' WTP that leads to TC usage.

Trade credit is the most important form of short-term finance for firms. In 2019, U.S. non-financial firms had about $4.5 trillion in trade credit outstanding equaling 21 percent of U.S. GDP. This paper documents two striking facts about trade credit use. First, firms with higher markups supply more trade credit. Second, trade credit use increases in relationship length, as firms often switch from cash in advance to trade credit but rarely away from trade credit. These two facts can be rationalized in a model where firms learn about their trading partners, sellers charge markups over production costs, and financial intermediation is costly. The model also shows that saving on financial intermediation costs provides a strong rationale for the dominance of trade credit. Using Chilean data at the firm-product-level and the trade-transaction level, we find support for all predictions of the model.

Using information on the sales of debt claims for 132 U.S. Chapter 11 bankruptcy cases, we show that large trade creditors’ decisions to sell receivables of a distressed company in bankruptcy are predictive of lower recovery rates, and that in such cases these creditors sell ahead of less informed suppliers and other creditors. This result is especially pronounced for more opaque distressed firms, when trade creditors’ information advantage is likely largest. This evidence shows that suppliers that extend significant amounts of trade credit hold private information about their trade partners. Trade creditors who are geographically closer or in similar industries tend to lend the most, suggesting that these are two channels through which suppliers hold an information advantage.

We document that borrowers of banks that received capital support under TARP/CPP significantly increased their quarterly provision of trade credit (accounts receivable) during the crisis by 5.2%, while borrowers of other banks did not. The effect is strongest in 2008Q4, and larger for pre-crisis riskier, growth-oriented and bank-dependent firms and for firms that borrow from pre-crisis smaller, less profitable and better capitalized CPP banks. Our difference-in-differences analysis shows that the effect is caused by CPP and not by heterogeneity between firms, banks and time periods. Our study provides novel evidence that suggests a beneficial multiplier effect of bank bailouts .