Trade Credit and the Stability of Supply Chains
57 Pages Posted: 26 Jul 2021 Last revised: 21 Jun 2022
Date Written: March 14, 2022
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
JEL Classification: G3, D2, E23
Suggested Citation: Suggested Citation