Suppliers As Liquidity Insurers

58 Pages Posted: 5 Jun 2017 Last revised: 28 Mar 2019

See all articles by Daniel Corsten

Daniel Corsten

Fundación Instituto de Empresa, S.L.

Reint Gropp

Halle Institute for Economic Research

Panos Markou

University of Virginia - Darden School of Business

Date Written: March 2019

Abstract

Using a unique supplier/customer linked dataset for France, we examine how financial constraints of suppliers affect cash holdings at the level of the customer. We show that firms with unconstrained suppliers hold about 10% less cash than firms with constrained suppliers. We rely on matching estimators and on a legal reform in France that resulted in a significant exogenous relaxation of credit constraints for some firms for identification. Consistent with theory, we also show that customers with unconstrained suppliers have more accounts payable and that the reduction in cash holdings is greater for firms with stronger ties to their unconstrained suppliers. This effect persisted during the global financial crisis, highlighting that suppliers may be viable insurers of liquidity even when financing from banks and other external channels is unavailable.

Keywords: supply chain, cash, credit constraints, liquidity insurance

JEL Classification: G30, D92, G20

Suggested Citation

Corsten, Daniel and Gropp, Reint and Markou, Panos, Suppliers As Liquidity Insurers (March 2019). Available at SSRN: https://ssrn.com/abstract=2980424 or http://dx.doi.org/10.2139/ssrn.2980424

Daniel Corsten

Fundación Instituto de Empresa, S.L. ( email )

Serrano 99
Madrid, 28006
Spain

Reint Gropp

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Panos Markou (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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