Trade Credit and the Stability of Supply Chains

55 Pages Posted: 26 Jul 2021 Last revised: 15 Mar 2022

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

Date Written: March 14, 2022

Abstract

We study how production networks adapt when idiosyncratic shocks affect the reliability of a firm in the network. Considering natural disasters, we show that affected firms extend more trade credit, especially if their customers are difficult to replace. The suppliers of affected firms facilitate the trade credit provision by extending more trade credit, especially if the relationship with the affected firm is important. On average, supply chains appear to remain stable. Customers sever their relationships with the affected firms and recur to new suppliers only when the affected firms and their suppliers are financially constrained and cannot extend trade credit.

Keywords: [Supply chains, Production Networks,Trade Credit, Natural Disasters separated]

JEL Classification: G3, D2, E23

Suggested Citation

Ersahin, Nuri and Giannetti, Mariassunta and Huang, Ruidi, Trade Credit and the Stability of Supply Chains (March 14, 2022). 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)

London
United Kingdom

European Corporate Governance Institute (ECGI)

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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