Trade Credit Contracts

40 Pages Posted: 20 Apr 2016

See all articles by Leora F. Klapper

Leora F. Klapper

World Bank; World Bank - Development Research Group (DECRG)

Luc Laeven

European Central Bank (ECB); Centre for Economic Policy Research (CEPR)

Raghuram G. Rajan

University of Chicago - Booth School of Business; International Monetary Fund (IMF); National Bureau of Economic Research (NBER)

Multiple version iconThere are 4 versions of this paper

Date Written: July 1, 2011

Abstract

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.

Keywords: Debt Markets, Access to Finance, Investment and Investment Climate, Bankruptcy and Resolution of Financial Distress, Economic Theory & Research

Suggested Citation

Klapper, Leora F. and Laeven, Luc A. and Rajan, Raghuram G., Trade Credit Contracts (July 1, 2011). World Bank Policy Research Working Paper No. 5726, Available at SSRN: https://ssrn.com/abstract=1888947

Leora F. Klapper (Contact Author)

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World Bank - Development Research Group (DECRG)

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Luc A. Laeven

European Central Bank (ECB) ( email )

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Centre for Economic Policy Research (CEPR)

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Raghuram G. Rajan

University of Chicago - Booth School of Business ( email )

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