Do Trade Creditors Possess Private Information? Evidence from Stock Returns

49 Pages Posted: 23 Dec 2018

See all articles by David A. Hirshleifer

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business; NBER

Yifan Li

San Francisco State University

Ben Lourie

University of California, Irvine

Thomas Ruchti

Carnegie Mellon University - David A. Tepper School of Business

Date Written: November 20, 2018

Abstract

Theories of customer supplier relationships hold that the private information of suppliers about buyers explains the use of trade credit even when there is a competitive banking sector. If suppliers possess private information about their buyers, then the buyer’s order size and ability to pay on time should reflect that information. Using a novel dataset of trade credit relationships, we test whether suppliers have private information about their buyers. Consistent with suppliers possessing private information, we find that the amount of trade credit that a supplier offers to a buyer and the ability of the buyer to pay the trade credit on time are both associated with future buyer abnormal stock returns.

Keywords: trade credit, non-bank lending, customer-supplier relationships, stock returns, private information

JEL Classification: G12, G23, L14, M41

Suggested Citation

Hirshleifer, David A. and Li, Yifan and Lourie, Ben and Ruchti, Thomas, Do Trade Creditors Possess Private Information? Evidence from Stock Returns (November 20, 2018). Available at SSRN: https://ssrn.com/abstract=3295808 or http://dx.doi.org/10.2139/ssrn.3295808

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

HOME PAGE: http://sites.uci.edu/dhirshle/

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yifan Li

San Francisco State University

United States

Ben Lourie (Contact Author)

University of California, Irvine ( email )

Irvine, CA 92697-3125
United States

Thomas Ruchti

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

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