Does Competition Encourage Credit Provision? Evidence from African Trade Credit Relationships

25 Pages Posted: 27 Apr 2003 Last revised: 1 Oct 2009

See all articles by Raymond J. Fisman

Raymond J. Fisman

National Bureau of Economic Research (NBER); Boston University

Mayank Raturi

Swiss Re

Date Written: April 2003

Abstract

Previous work has claimed that monopoly power facilitates the provision of credit, since monopolists are better able to enforce payment. Here, we argue that if relationship-specific investments are required by borrowers to establish creditworthiness, monopoly power may reduce credit provision because hold up problems ex post will deter borrowers from investing in establishing creditworthiness. Empirically, we examine the relationship between monopoly power and credit provision, using data on the supply relationships of firms in five African countries. Consistent with the upfront investment story, we find that monopoly power is negatively associated with credit provision, and that this correlation is stronger in older supplier relationships. Because the data include several observations per firm, we are able to utilize firm fixed-effects, thus netting out unobserved firm characteristics that may have been driving results in earlier studies.

Suggested Citation

Fisman, Raymond and Raturi, Mayank, Does Competition Encourage Credit Provision? Evidence from African Trade Credit Relationships (April 2003). NBER Working Paper No. w9659. Available at SSRN: https://ssrn.com/abstract=398562

Raymond Fisman (Contact Author)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Mayank Raturi

Swiss Re ( email )

55 East 52nd Street
New York, NY 10055
United States

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