Trade Credit in the Product Market Network
52 Pages Posted: 18 Jul 2019
Date Written: July 16, 2019
We argue that an industry’s likelihood to propagate liquidity shocks to both directly and distantly connected industries influences the use and extension of trade credit. Using industry centrality as a measure of the likelihood of shock propagation, we find that firms in more central customer (supplier) industries receive (extend) more (less) trade credit than firms in less central industries, even after controlling for other industry features including direct trade connections and product specificity. Evidence from two liquidity shocks supports the proposition that the threat of shock propagation provides an incentive for nonfinancial firms to provide liquidity support through trade credit.
Keywords: Trade credit, Product market network, Industry centrality, Shock propagation
JEL Classification: G32, L14, E23
Suggested Citation: Suggested Citation