Trade credit use as firms approach default

Item Type Monograph (Working Paper)
Abstract

Using a sample of firms matched with their suppliers, we study the use of trade credit as firms approach a default event. We show that, in the extensive margin, around one third of suppliers exit the relationship well ahead of default, but the rest continue the relationship. Relationships are more likely to continue when suppliers sell differentiated goods, are located close to their distressed clients, sell large proportions to the distressed clients, or when the distressed client is in a concentrated market, suggesting that dependent suppliers are held up in distressed relationships. Firms with suppliers that continue the relationship continue purchasing the same amounts from their suppliers and have larger increases in accounts payable, suggesting that held-up suppliers trade-off the potential benefits of granting concessions to their clients during bad times with the risk of increasing their exposure to a distressed firm.

Authors García-Appendini, Emilia & Montoriol-Garriga, Judit
Language English
Keywords Trade credit, financial distress, lines of credit, hold up.
Subjects business studies
HSG Classification contribution to scientific community
Refereed No
Date 2014
Publisher Working paper
Depositing User Prof. PhD Emilia García-Appendini
Date Deposited 03 Jul 2014 11:56
Last Modified 23 Aug 2016 11:19
URI: https://www.alexandria.unisg.ch/publications/232512

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García-Appendini, Emilia & Montoriol-Garriga, Judit: Trade credit use as firms approach default. , 2014,

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https://www.alexandria.unisg.ch/id/eprint/232512
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