Interest Rates in Trade Credit Markets

63 Pages Posted: 16 Feb 2009 Last revised: 17 Mar 2016

See all articles by Klenio Barbosa

Klenio Barbosa

Sao Paulo School of Economics - FGV

Humberto Moreira

Fundacao Getulio Vargas (FGV)

Walter Novaes

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics

Date Written: March 1, 2016

Abstract

All things equal, interest rates should increase with the borrower's risk. And yet, Klapper, Laeven and Rajan (2012) cannot find such a positive relation in a broad sample of trade credit contracts. We shed some light on this puzzle by arguing that competition between informed and uninformed suppliers weakens the link between the trade credit cost and the borrower's creditworthiness. Our model implies that trade credit rates are more likely to increase with the borrower's risk if suppliers are less profitable, have high cost of funds or sell inputs to firms plagued by moral hazard and financial distress.

Keywords: Trade Credit, Information, Credit Risk

JEL Classification: G30, G32

Suggested Citation

Barbosa, Klenio and Moreira, Humberto and Novaes, Walter, Interest Rates in Trade Credit Markets (March 1, 2016). Journal of Money, Credit, and Banking, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1344400 or http://dx.doi.org/10.2139/ssrn.1344400

Klenio Barbosa (Contact Author)

Sao Paulo School of Economics - FGV ( email )

Rua Itapeva, 474
Sao Paulo
Brazil

Humberto Moreira

Fundacao Getulio Vargas (FGV) ( email )

R. Dr. Neto de Araujo 320 cj 1307
Rio de Janeiro, Rio de Janeiro 22250-900
Brazil

Walter Novaes

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil

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