Trade Credit in the Product Market Network

52 Pages Posted: 18 Jul 2019

See all articles by John J. McConnell

John J. McConnell

Purdue University

Jing Wang

University of Nebraska at Lincoln - Department of Finance

Liying Wang

University of Nebraska at Lincoln

Date Written: July 16, 2019

Abstract

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

McConnell, John J. and Wang, Jing and Wang, Liying, Trade Credit in the Product Market Network (July 16, 2019). Available at SSRN: https://ssrn.com/abstract=3421623 or http://dx.doi.org/10.2139/ssrn.3421623

John J. McConnell

Purdue University ( email )

MGMT, KRAN
403 West State St.
West Lafayette, IN 47907-2056
United States
765-494-5910 (Phone)
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Jing Wang (Contact Author)

University of Nebraska at Lincoln - Department of Finance ( email )

Lincoln, NE 68588-0490
United States

Liying Wang

University of Nebraska at Lincoln ( email )

Lincoln, NE 68588
United States

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