The Effect of Business Group Affiliation on Trade Credit Financing: An Empirical Analysis of Public Firms in Korea

45 Pages Posted: 2 Jul 2020 Last revised: 19 Nov 2020

See all articles by Byung-Uk Chong

Byung-Uk Chong

College of Business Administration, Univ of Seoul

Hyun Joong Im

The University of Seoul; Peking University - HSBC Business School

Date Written: July 25, 2020

Abstract

This paper examines how trade credit demand and supply are determined in Korea, where large business groups are dominant in most of the segments and hierarchies of many industries. In particular, we investigate the effects of business group affiliation on trade credit financing, finding 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 provide substantially less trade credits but to demand more when they face financial constraints. However, we do not find evidence that trade credit financing functions as an instrument to subsidize member firms through the internal capital markets within a business group. These findings explain the effects of business group affiliation on trade credit demand and supply in short-term debt markets from the perspective of the unique characteristics of the Korean economy.

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, The Effect of Business Group Affiliation on Trade Credit Financing: An Empirical Analysis of Public Firms in Korea (July 25, 2020). 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 )

Korea, Republic of (South Korea)
+82-2-6490-2268 (Phone)
+82-2-6490-2219 (Fax)

Peking University - HSBC Business School ( email )

China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
51
Abstract Views
441
rank
473,968
PlumX Metrics