Trade Credit in the Product Market Network
51 Pages Posted: 18 Jul 2019 Last revised: 8 Oct 2019
Date Written: October 8, 2019
We document that industry positions in the product market network – a feature exogenous to individual firms – significantly influences firms’ use and extension of trade credit. Specifically, firms in higher centrality customer industries use more trade credit and firms in higher centrality supplier industries provide less trade credit than other firms. These results are robust to controlling for other industry features including direct trade connections and product specificity. The evidence from examining the interest rates of accounts receivable and two negative liquidity shocks suggests that central industries’ high likelihood to propagate liquidity shocks grants them advantages in trade credit negotiations.
Keywords: Trade credit, Product market network, Industry centrality, Shock propagation
JEL Classification: G32, L14, E23
Suggested Citation: Suggested Citation