Effects of Business Group Affiliation on Trade Credit Finance: An Empirical Analysis of Public Firms in Korea

60 Pages Posted: 2 Jul 2020 Last revised: 24 Jan 2022

See all articles by Byung-Uk Chong

Byung-Uk Chong

College of Business Administration, Univ of Seoul

Hyun Joong Im

The University of Seoul

Date Written: November 25, 2021

Abstract

This study examines how trade credit demand and supply are determined in Korea, where large business groups are dominant in most segments and hierarchies of many industries. Particularly, we investigate the effects of business group affiliation on the demand and supply of trade credit and find that a firm’s affiliation with a large business group has a positive effect on trade credit demand but a negative effect on trade credit supply. The results suggest that the extra bargaining power of large business groups enables group affiliates to supply less trade credit, but demand more. This study, which examines an extensive sample of Korean group affiliates, does not find strong evidence that trade credit finance functions as a tool for financial redistribution among group affiliates, as Deloof and Jegers (1999) did not either.

Keywords: Short-Term Debt Financing, Trade Credit, Business Group Affiliation, Financial Constraints, Bargaining Power

JEL Classification: G20, G30, G32

Suggested Citation

Chong, Byung-Uk and Im, Hyun Joong, Effects of Business Group Affiliation on Trade Credit Finance: An Empirical Analysis of Public Firms in Korea (November 25, 2021). Available at SSRN: https://ssrn.com/abstract=3624042 or http://dx.doi.org/10.2139/ssrn.3624042

Byung-Uk Chong

College of Business Administration, Univ of Seoul ( email )

Seoulsiripdae-ro 163
Dongdaemun-gu
Seoul
Korea, Republic of (South Korea)
+82-2-6490-2250 (Phone)
+82-2-6490-2219 (Fax)

HOME PAGE: http://www.uos.ac.kr

Hyun Joong Im (Contact Author)

The University of Seoul ( email )

163 Seoulsiripdae-ro
Dongdaemun-gu
Seoul, 02504
Korea, Republic of (South Korea)
+82-2-6490-2268 (Phone)
+82-2-6490-2219 (Fax)

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