Trade Credit and Profitability in Production Networks

74 Pages Posted: 12 Dec 2013 Last revised: 11 Mar 2021

See all articles by Michael Gofman

Michael Gofman

Hebrew University of Jerusalem - Jerusalem School of Business Administration; Simon Business School

Youchang Wu

University of Oregon - Lundquist College of Business

Date Written: March 10, 2021

Abstract

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

Suggested Citation

Gofman, Michael and Wu, Youchang, Trade Credit and Profitability in Production Networks (March 10, 2021). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2365995 or http://dx.doi.org/10.2139/ssrn.2365995

Michael Gofman (Contact Author)

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Mount Scopus
Jerusalem, 91905
Israel

HOME PAGE: http://gofman.info

Simon Business School ( email )

Rochester, NY 14627
United States

HOME PAGE: http://gofman.info

Youchang Wu

University of Oregon - Lundquist College of Business ( email )

1280 University of Oregon
Eugene, OR 97403
United States

HOME PAGE: http://www.youchangwu.com

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