Trade Creditors' Information Advantage

50 Pages Posted: 1 Feb 2018

See all articles by Victoria Ivashina

Victoria Ivashina

Harvard University; National Bureau of Economic Research (NBER)

Benjamin Charles Iverson

Brigham Young University

Date Written: January 22, 2018

Abstract

Using information on the sales of debt claims for 132 U.S. Chapter 11 bankruptcy cases, we show that large trade creditors’ decisions to sell receivables of a distressed company in bankruptcy are predictive of lower recovery rates, and that in such cases these creditors sell ahead of less informed suppliers and other creditors. This result is especially pronounced for more opaque distressed firms, when trade creditors’ information advantage is likely largest. This evidence shows that suppliers that extend significant amounts of trade credit hold private information about their trade partners. Trade creditors who are geographically closer or in similar industries tend to lend the most, suggesting that these are two channels through which suppliers hold an information advantage.

Keywords: Trade Credit, Distress, Bankruptcy

JEL Classification: G21, G30, G32, G33

Suggested Citation

Ivashina, Victoria and Iverson, Benjamin Charles, Trade Creditors' Information Advantage (January 22, 2018). Available at SSRN: https://ssrn.com/abstract=3108646 or http://dx.doi.org/10.2139/ssrn.3108646

Victoria Ivashina

Harvard University ( email )

Harvard Business School
Baker Library 233
Boston, MA 02163
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Benjamin Charles Iverson (Contact Author)

Brigham Young University ( email )

United States

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