Trade Credit and the Stability of Supply Chains

Abstract

We explore whether financial flows increase the stability of supply chains by studying the trade credit usage of firms that face operating difficulties due to 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 trade credit, especially if the relationship with the affected firm is important. On average, supply chains remain stable. Customers sever their relationships with the affected firms 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

JEL Classification: G3, D2, E23