Curbing Shocks to Corporate Liquidity: The Role of Trade Credit

Riksbank Research Paper Series No. 144

Sveriges Riksbank Working Paper Series No. 320

47 Pages Posted: 4 Jun 2016

See all articles by Niklas Amberg

Niklas Amberg

Stockholm School of Economics

Tor Jacobson

Sveriges Riksbank - Research Division

Erik von Schedvin

Sveriges Riksbank

Robert M. Townsend

Massachusetts Institute of Technology (MIT)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2016

Abstract

Using data on exogenous liquidity losses generated by the fraud and failure of a cash-in-transit firm, we demonstrate a causal impact on firms’ trade credit usage. We find that firms manage liquidity shortfalls by increasing the amount of drawn credit from suppliers and decreasing the amount issued to customers. The compounded trade credit adjustments are at least as great, if not greater than corresponding adjustments in cash holdings, suggesting that trade credit positions are economically important sources of reserve liquidity. The underlying mechanism in trade credit adjustments is in part due to shifts in credit durations — both upstream and downstream.

Keywords: Liquidity management, Trade credit, Risk sharing

JEL Classification: D22, G30

Suggested Citation

Amberg, Niklas and Jacobson, Tor and von Schedvin, Erik and Townsend, Robert M., Curbing Shocks to Corporate Liquidity: The Role of Trade Credit (May 2016). Riksbank Research Paper Series No. 144. Available at SSRN: https://ssrn.com/abstract=2780437 or http://dx.doi.org/10.2139/ssrn.2780437

Niklas Amberg

Stockholm School of Economics

PO Box 6501
Stockholm, 11383
Sweden

Tor Jacobson (Contact Author)

Sveriges Riksbank - Research Division ( email )

S-103 37 Stockholm
Sweden
+46 8 787 0000 (Phone)

HOME PAGE: www.riksbank.com

Erik Von Schedvin

Sveriges Riksbank ( email )

Brunkebergstorg 11
SE-103 37 Stockholm
Sweden

Robert M. Townsend

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

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