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In many OECD countries, a seller has a right to reimbursement of VAT (RVAT) she has paid on goods sold, but for which she has not yet received payment. Such reimbursement of VAT on receivables is economically inefficient. It leads to: • Distortion of credit markets, by subsidizing direct credit at the cost of financial intermediaries. • Price discrimination, by subsidizing buyers with low creditworthiness. • A less efficient collection of bad debts, as trade with bad debts is made extremely expensive. The finance literature presents several “good” arguments in favor of trade credits, e.g. transaction costs and asymmetric information. In contrast RVAT is an economically “bad” argument for trade credit. It is a subsidy that leads to inefficiently high use of trade credit.

Unless developing countries embrace a corporate governance perspective, privatization is unlikely to provide the benefits of improved performance with accountability. This article introduces the concept of governance chains that can constrain the grabbing hands of public and private actors by providing information and accountability mechanisms to help investors monitor managers. Empirical data on established firms from 49 countries provide estimates of the relative importance and strength of private and formal chains of governance. The framework and empirical benchmarks help explain the outcomes of past privatizations and suggest certain steps that governments can pursue to be sure to get the most out of future privatization activity.

In 2006, Huang proposed an inventory model with two warehouses when the supplier offers the retailer a permissible delay of M periods, and the retailer also provides its customers a permissible delay of N periods. He then solved it without derivatives. In this note, we extend his model to complement the shortcomings of his model. In contrast to the complicated and tedious quadratic–algebraic method suggested by Huang, we propose a simple arithmetic–geometric method to solve the inventory problem. Finally, we run computer programs for several numerical examples to illustrate the proposed model and obtain some managerial implications.

Millions of nanostores serve bottom-of-the-pyramid consumers in emerging markets. Their suppliers, Consumer Packaged Goods (CPG) companies, struggle with high operational costs that largely stem from shopkeepers’ liquidity constraints. We empirically investigate whether suppliers can improve operational performance by allowing nanostore shopkeepers to delay order payment by a short period of time. We term this delayed payment alternative "Order-Based Trade Credit" (OBTC) and examine the key trade-off suppliers face when transacting with it. OBTC can create efficiency gains in selling and delivering products to nanostores. However, OBTC is risky, as shopkeepers might default on their credit lines. Leveraging data from a nanostore supplier offering OBTC, we assess the effect of this novel policy on the operational performance of the supplier through a difference-in-differences approach. We find that OBTC leads to substantial gains for nanostore suppliers, across a range of important operational drivers. In addition, we show when the benefits of OBTC compensate the risk suppliers take in providing it.

This paper examines how the ability to access long-term debt affects firm-level growth volatility. The analysis finds that firms in industries with stronger preference to use long-term finance relative to short-term finance experience lower growth volatility in countries with better-developed financial systems, as these firms may benefit from reduced refinancing risk. Institutions that facilitate the availability of credit information and contract enforcement mitigate the refinancing risk and therefore growth volatility associated with short-term financing. Increased availability of long-term finance reduces growth volatility in crisis as well as non-crisis periods.