Trade Credit and the Stability of Supply Chains

79 Pages Posted: 26 Jul 2021 Last revised: 9 Feb 2023

See all articles by Nuri Ersahin

Nuri Ersahin

Michigan State University-Department of Finance

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Ruidi Huang

Southern Methodist University (SMU) - Finance Department

Multiple version iconThere are 2 versions of this paper

Date Written: February 8, 2023

Abstract

We show that trade credit flows in production networks increase when a firm in the network faces an operating shock. Affected firms extend and receive more trade credit and suppliers provide more trade credit to affected firms if the production network’s break-up costs are larger. When financial constraints over the supply network prevent the increase in trade credit, customers sever their relationships with the affected firms. Our results show that trade credit is used as a glue to enhance the stability of production networks and that firms consider both direct customer relationships and downstream customer-supplier linkages when providing trade credit.

Keywords: Supply chains, Production Networks,Trade Credit, Natural Disasters

JEL Classification: D2, E23, G3

Suggested Citation

Ersahin, Nuri and Giannetti, Mariassunta and Huang, Ruidi, Trade Credit and the Stability of Supply Chains (February 8, 2023). SMU Cox School of Business Research Paper No. 21-09, Swedish House of Finance Research Paper No. 21-13, Available at SSRN: https://ssrn.com/abstract=3892852 or http://dx.doi.org/10.2139/ssrn.3892852

Nuri Ersahin

Michigan State University-Department of Finance ( email )

East Lansing, MI 48824
United States
8478686532 (Phone)

HOME PAGE: http://sites.google.com/site/nuriersahin/

Mariassunta Giannetti (Contact Author)

Stockholm School of Economics ( email )

P.O. Box 6501
Sveavagen 65
SE-113 83 Stockholm
Sweden
+46 8 736 9607 (Phone)
+46 8 312 327 (Fax)

HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Ruidi Huang

Southern Methodist University (SMU) - Finance Department ( email )

United States

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