Trade Credit and Profitability in Production Networks
74 Pages Posted: 12 Dec 2013 Last revised: 11 Mar 2021
Date Written: March 10, 2021
We construct a sample of over 200,000 supply chains to conduct a chain-based analysis of trade credit. Our study uncovers novel stylized facts about trade credit both within and across supply chains. More upstream firms borrow more from suppliers, lend more to customers, and hold more net trade credit. This upstreamness effect in trade credit is weaker for more profitable firms and for longer chains. Firms in more central or more profitable chains provide more net trade credit. Our results are generally consistent with the recursive moral hazard theory of trade credit. Evidence for the financing advantage theory is mixed.
Keywords: trade credit, supply chains, production networks, profitability
JEL Classification: G32, L14, L15
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