Trade Credit and Pricing: An Empirical Evaluation

Riksbank Research Paper Series No. 177

Sveriges Riksbank Working Paper Series No. 354

29 Pages Posted: 2 Nov 2018

See all articles by Tor Jacobson

Tor Jacobson

Sveriges Riksbank - Research Division

Erik von Schedvin

Sveriges Riksbank

Niklas Amberg

Stockholm School of Economics

Date Written: June 2018

Abstract

We empirically investigate the proposition that firms charge premia on cash prices in transactions involving trade credit. Using a comprehensive Swedish panel dataset on product-level transaction prices and firm-characteristics, we relate trade credit issuance to price setting. In a recession characterized by tightened credit conditions, we find that prices increase significantly more on products sold by firms issuing more trade credit, reflecting their larger exposures to increased funding costs and counterparty risks. Our results thus demonstrate the importance of trade credit for price setting and show that trade credit issuance induces a channel through which financial frictions affect prices.

Keywords: Trade credit, prices, inflation, liquidity, counterparty risk

JEL Classification: E31, E32, D22, G30, L11

Suggested Citation

Jacobson, Tor and von Schedvin, Erik and Amberg, Niklas, Trade Credit and Pricing: An Empirical Evaluation (June 2018). Riksbank Research Paper Series No. 177, Sveriges Riksbank Working Paper Series No. 354, Available at SSRN: https://ssrn.com/abstract=3263495 or http://dx.doi.org/10.2139/ssrn.3263495

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

Niklas Amberg

Stockholm School of Economics

PO Box 6501
Stockholm, 11383
Sweden

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