What You Sell is What You Lend? Explaining Trade Credit Contracts

54 Pages Posted: 15 Nov 2004

See all articles by Mariassunta Giannetti

Mariassunta Giannetti

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

Mike Burkart

Swedish House of Finance; London School of Economics and Political Science, Department of Finance; Finance Theory Group (FTG); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Tore Ellingsen

Stockholm School of Economics - Department of Economics; Norwegian School of Economics (NHH) - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: September 2007

Abstract

We relate trade credit to product characteristics and aspects of bank-firm relationships and document three main empirical regularities. First, the use of trade credit is associated with the nature of the transacted good. In particular, suppliers of differentiated products and services have larger accounts receivable than suppliers of standardized goods and firms buying more services receive cheaper trade credit for longer periods. Second, firms receiving trade credit secure financing from relatively uninformed banks. Third, a majority of firms in our sample appears to receive trade credit at low cost. Additionally, firms that are more creditworthy and have some buyer market power receive larger early payment discounts.

Keywords: Trade credit, contract theory, collateral, moral hazard

JEL Classification: G32

Suggested Citation

Giannetti, Mariassunta and Burkart, Mike C. and Ellingsen, Tore, What You Sell is What You Lend? Explaining Trade Credit Contracts (September 2007). EFA 2006 Zurich Meetings, ECGI - Finance Research Paper No. 71/2005, Available at SSRN: https://ssrn.com/abstract=930390 or http://dx.doi.org/10.2139/ssrn.930390

Mariassunta Giannetti (Contact Author)

Stockholm School of Economics ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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European Corporate Governance Institute (ECGI) ( email )

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Swedish House of Finance ( email )

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Mike C. Burkart

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

London School of Economics and Political Science, Department of Finance ( email )

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Finance Theory Group (FTG) ( email )

United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

HOME PAGE: http://www.cepr.org/default_static.htm

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

Tore Ellingsen

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden
+46 8 736 9260 (Phone)
+46 8 31 3207 (Fax)

Norwegian School of Economics (NHH) - Department of Economics

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N-5035 Bergen
Norway

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