Credit Market Disruptions and Liquidity Spillover Effects in the Supply Chain

By A. Costello. Journal of Political Economy, 2020

161 citations recorded by the source corpus.

How do shocks to the banking sector travel through the corporate economy? Using a novel data set of interfirm sales, I show that suppliers exposed to a large and exogenous decline in bank financing pass this liquidity shock to their downstream customers. The spillover effect occurs through two channels: a reduction in trade credit offered and a reduction in the total supply of goods and services. After exposure to the spillover, downstream customers show a spike in credit risk and a reduction in employment. Overall, the paper highlights the importance of financial spillovers in explaining corporate sector outcomes.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/468412daba6d0fcca3855c5ef87b514f36cc90e8

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Citations in the corpus

The Role of Corporate Social Responsibility (CSR) Information in Supply-Chain Contracting: Evidence from the Expansion of CSR Rating Coverage (2021, background): “renegotiating contracts with corporate customers (Costello, 2020).”
On the direct and indirect real effects of credit supply shocks (2019, unknown): “Additionally, the effect of accounts payable is always statistically significant and large, which corroborates the findings in Costello (2017) that trade credit shocks affect real outcomes of customer firms (buyers).”
Sectoral Effects of Social Distancing (2020, background): “Recent empirical studies such as Boissay and Gropp (2013), Tor and Schedvin (2015), Costello (2017) and Jorion and Zhang (2009) confirm that liquidity shocks propagate within networks of firms through these trade credit linkages.”