Trade Credit, Collateral Liquidation and Borrowing Constraints

Daniela Fabbri () and Anna Maria Menichini
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Daniela Fabbri: University of Amsterdam

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: The paper proposes a model of collateralized bank and trade credit. Firms use a two-input technology. Assuming that the supplier is better able to extract value from existing assets and has an information advantage over other creditors, the paper derives a series of predictions. (1) Financially unconstrained firms (with unused bank credit lines) take trade credit for a liquidation motive. (2) The reliance on trade credit does not depend on credit rationing, if inputs are liquid enough. (3) Firms buying goods make more purchases on account than those buying services, while suppliers of services offer more trade credit than those of standardized goods. (4) Suppliers lend inputs to their customers but not cash. (5) Greater reliance on trade credit is associated with more intensive use of tangible inputs. (6) Better creditor protection decreases both the use of trade credit and input tangibility.

Keywords: trade credit; collateral; financial constraints; asset tangibility; creditor protection ibility (search for similar items in EconPapers)
JEL-codes: G32 G33 K22 L14 (search for similar items in EconPapers)
Date: 2005-11-01, Revised 2009-02-08
New Economics Papers: this item is included in nep-cfn, nep-fin and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Published in Journal of Financial Economics, 2010, Vol. 96, 3, pp. 413–432

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Related works:
Journal Article: Trade credit, collateral liquidation, and borrowing constraints (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:146

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