Increased Creditor Protection in Bankruptcy and Trade Credit: Evidence from the 2005 BAPCPA

51 Pages Posted: 4 Jan 2018 Last revised: 16 Apr 2018

See all articles by Wenxia Ge

Wenxia Ge

University of Ottawa

Caiyue Ouyang

Zhongnan University of Economics and Law

Zhenyang Shi

The Chinese University of Hong Kong (CUHK)

Byron Y. Song

Hong Kong Baptist University (HKBU) - Department of Accountancy & Law

Date Written: December 29, 2017

Abstract

We examine whether the increased creditor protection under the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) affects suppliers’ provision of trade credit to their customers with high default risk. Employing a difference-in-differences analysis for a sample of U.S. public firms during 2002-2008, we find that suppliers whose customers have high default risk extend more trade credit after BAPCPA. We also find that this relation exists when suppliers have stronger reliance on their customers. Overall, our results indicate that the increased creditor protection in bankruptcy induces suppliers to offer more trade credit to customers with high default risk during the ordinary course of business. Our findings have policy implications given the heated debate over the BAPCPA’s effect on Chapter 11 bankruptcy process.

Keywords: Bankruptcy risk, Creditor right protection, Trade credit

JEL Classification: G32, G33

Suggested Citation

Ge, Wenxia and Ouyang, Caiyue and Shi, Zhenyang and Song, Byron Y., Increased Creditor Protection in Bankruptcy and Trade Credit: Evidence from the 2005 BAPCPA (December 29, 2017). 2018 Canadian Academic Accounting Association (CAAA) Annual Conference, Available at SSRN: https://ssrn.com/abstract=3094746 or http://dx.doi.org/10.2139/ssrn.3094746

Wenxia Ge (Contact Author)

University of Ottawa ( email )

55 Laurier Avenue East
Ottawa, Ontario K1N 6N5
Canada

Caiyue Ouyang

Zhongnan University of Economics and Law

No.143, Wuluo Road
Wuhan, Hubei 430073
China

Zhenyang Shi

The Chinese University of Hong Kong (CUHK) ( email )

Shatin, N.T.
Hong Kong
Hong Kong

Byron Y. Song

Hong Kong Baptist University (HKBU) - Department of Accountancy & Law ( email )

Kowloon Tong, Kowloon
Hong Kong

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