Trade Credit and the Joint Effects of Supplier and Customer Financial Characteristics
33 Pages Posted: 15 Mar 2011 Last revised: 19 Feb 2016
Date Written: August 15, 2015
We examine how access to bank credit affects trade credit in the supplier-customer relationships of U.S. public firms. For identification, we use exogenous liquidity shocks to supplier firms in the form of staggered changes to interstate bank branching laws. Using a variety of tests, we show that supplier firms with greater access to banking liquidity offer more trade credit to their customers. We also document a higher likelihood of survival of supplier-customer relationships in states that relax bank branching restrictions. Overall, our paper explores the real effects of banking competition on supplier-customer relationships of public firms.
Keywords: Trade credit, supplier-customer relationships, bank lines of credit, banking deregulation, contagion, financial distress
JEL Classification: G30, G32, G33
Suggested Citation: Suggested Citation