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In-kind finance: a theory of trade credit
Mike Burkart,Tore Ellingsen +1 more
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In this paper, the authors argue that it is typically less profitable for an opportunistic borrower to divert inputs than to divert cash, and that suppliers may lend more liberally than banks.Abstract:
It is typically less profitable for an opportunistic borrower to divert inputs than to divert cash. Therefore, suppliers may lend more liberally than banks. This simple argument is at the core of our contract theoretic model of trade credit in competitive markets. The model implies that trade credit and bank credit can be either complements or substitutes. Among other things, the model explains why trade credit has short maturity, why trade credit is more prevalent in less developed credit markets, and why accounts payable of large unrated firms are more countercyclical than those of small firms.read more
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Trade credit model with customer balking and asymmetric market information
TL;DR: In this article, trade credit, customer balking behavior and market information asymmetry and information sharing in a two-level supply chain were considered and Stackelberg equilibriums were derived in each scenario, respectively.
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Reverse Trade Credit or Default Risk? Explaining the Use of Prepayments by Firms
TL;DR: In this article, the authors provide a detailed empirical study on the use of advance payments by firms and establish that some trade credit theories can also be applied to prepayment, and that financially stronger customers fund the production of their financially weaker suppliers.
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Financial Constraints, Firms’ Supply Chains, and Internationalization
TL;DR: In this paper, the effect of financial constraints on firms' participation in domestic and international supply chains was investigated using a unique sample of small and medium-sized Italian firms, and they found that firms more exposed to credit rationing and with weaker relationships with banks are more likely to participate in supply chains to overcome liquidity shortages.
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Economic policy uncertainty and short-term financing: The case of trade credit
Ranjan D'Mello,Francesca Toscano +1 more
TL;DR: The authors examined the impact of economic policy uncertainty on trade credit and found that firms react quickly to changes in uncertainty, and that the reduction in trade credit during periods of increasing uncertainty can be explained by financial distress, constraints, and relation-specific investment channels.
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Payment choice in international trade: theory and evidence from cross-country firm level data
TL;DR: In this article, the authors show that international transactions are more likely paid after delivery when financing costs in the source country are high and when contract enforcement is low, and also show empirically that the more complex an industry is, the more important is contract enforcement and the less important are financing costs for the contract choice.
References
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Determinants of corporate borrowing
TL;DR: In this article, the authors predict that corporate borrowing is inversely related to the proportion of market value accounted for by real options and rationalize other aspects of corporate borrowing behavior, such as the practice of matching maturities of assets and debt liabilities.
Posted Content
What Do We Know About Capital Structure? Some Evidence from International Data
Raghuram G. Rajan,Raghuram G. Rajan,Raghuram G. Rajan,Luigi Zingales,Luigi Zingales,Luigi Zingales +5 more
TL;DR: In this paper, the authors investigate the determinants of capital structure choice by analyzing the financing decisions of public firms in the major industrialized countries and find that factors identified by previous studies as important in determining the cross-section of the capital structure in the U.S. affect firm leverage in other countries as well.
MonographDOI
Firms, contracts, and financial structure
TL;DR: In this article, a general model of the firm is developed, and then the financial structure of firms, debt collecting and bankruptcy is analyzed in greater depth, and the authors contribute to contact theory as developed in economic analysis.
Journal ArticleDOI
The Effect of Credit Market Competition on Lending Relationships
TL;DR: The authors showed that the extent of competition in credit markets is important in determining the value of lending relationships and that creditors are more likely to finance credit constrained firms when credit markets are concentrated because it is easier for these creditors to internalize the benefits of assisting the firms.
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A more complete conceptual framework for SME finance
TL;DR: In this article, the authors propose a more complete conceptual framework for analysis of SME credit availability issues, and emphasize a causal chain from policy to financial structures, which affect the feasibility and profitability of different lending technologies.