Trade Credit Contracts

By L. Klapper, Luc Laeven, Raghuram G. Rajan. 2010

422 citations recorded by the source corpus.

The authors employ a novel dataset on almost 30,000 trade credit contracts to describe the broad characteristics of the parties that contract together; the key contractual terms, such as the discount for early payment; and the days by when payment is due. Whereas prior work has typically used information on only one side of the buyer-seller transaction, this paper utilizes information on both. The authors find that the largest and most creditworthy buyers receive contracts with the longest maturities from smaller suppliers, with the latter extending credit to the former perhaps as a way of certifying product quality. Discounts for early payment seem to be offered to riskier buyers to limit the potential nonpayment risk when credit is extended for non-financial reasons.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/26d5882b067ef3bfb0b77083e5148974ced56992

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

1. Chen Lin
2. Wensi Xie
3. Ross Levine
4. F. González
5. Asli Demirgüç-Kunt
6. Thorsten Beck
7. Solomon A. Tadesse
8. Yue Ma

In Economics and Econometrics

1. Chen Lin
2. Wensi Xie
3. Ross Levine
4. Asli Demirgüç-Kunt
5. S. Law
6. Thorsten Beck
7. F. González
8. James B. Ang

Citations in the corpus

• Stock Market Listing and the Use of Trade Credit: Evidence from Public and Private Firms (2017, neutral): “1 Just before the onset of the recent financial crisis of 20072009, trade credit funded almost 90% of global merchandise trade, worth US$25 trillion (Klapper et al., 2012).”
• Collateral Constraints and Macroeconomic Asymmetries (2013, neutral): “1 For instance, see Mian and Sufi (2010) and Hall (2011).”
• Corporate Resilience to Banking Crises: The Roles of Trust and Trade Credit (2016, positive): “In particular, because trade credit is a closer substitute for a firm’s short-run liquidity needs than it is for long-term capital investments (Klapper, Laeven, and Rajan (2012)), the resilience-enhancing effects of social trust should be greatest among firms that depend heavily on liquid funds.”