Trade Credit Use as Firms Approach Default

53 Pages Posted: 24 Jun 2014 Last revised: 1 May 2018

See all articles by Emilia Garcia-Appendini

Emilia Garcia-Appendini

University of Zurich - Department of Banking and Finance

Judit Montoriol-Garriga

La Caixa; Autonomous University of Barcelona - Department of Business Economics

Date Written: April 30, 2018

Abstract

Using a sample of distressed firms with information about suppliers, we document an average fall in the use of trade credit as firms approach bank-ruptcy compared to a control sample of non-bankrupt firms. However, we uncover a large degree of heterogeneity across suppliers. Suppliers facing high switching costs maintain their business ties with the distressed firms as they approach bankruptcy, and provide them more trade credit. Suppliers in concentrated markets provide temporary support to their clients. Overall, the findings of this paper show that switching costs are fundamental to ex-plain whether suppliers provide liquidity to their distressed clients or not.

Keywords: Trade credit, bankruptcy, switching costs

JEL Classification: G01, G30, G32

Suggested Citation

Garcia-Appendini, Emilia and Montoriol-Garriga, Judit and Montoriol-Garriga, Judit, Trade Credit Use as Firms Approach Default (April 30, 2018). University of St.Gallen, School of Finance Research Paper No. 2014/11, Available at SSRN: https://ssrn.com/abstract=2457750 or http://dx.doi.org/10.2139/ssrn.2457750

Emilia Garcia-Appendini (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Judit Montoriol-Garriga

Autonomous University of Barcelona - Department of Business Economics ( email )

Edifici B - Campus de la UAB
Bellaterra (Cerdanyola del Vallès)
Barcelona, Barcelona 08193
Spain

HOME PAGE: http://www.asr.uab.cat/casr/index.php?option=com_content&view=article&id=363:judith-montoriol-garrig

La Caixa ( email )

Av Diagonal 629
Barcelona, 08028
Spain

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