Economics at your fingertips  

Network Topology and Systemically Important Firms in the Interfirm Credit Network

Ohsung Kwon, Sung-guan Yun, Seung Hun Han, Yang Hon Chung and Duk Hee Lee ()
Additional contact information
Ohsung Kwon: KAIST
Sung-guan Yun: Bank of Korea
Seung Hun Han: KAIST
Yang Hon Chung: KAIST
Duk Hee Lee: KAIST

Computational Economics, 2018, vol. 51, issue 4, No 5, 847-864

Abstract: Abstract In a transaction between two firms, the buyer is expected to pay the seller with cash; however, due to the buyer’s lack of liquidity, an account receivable might be provided instead. Accounts Receivable Financing (ARF) is a type of trade credit that facilitates Korean interfirm transactions. Under ARF, the obligation to reimburse the bank is imputed to the seller if the buyer does not repay the loan to the bank. When the buyer confronts a liquidity shortage and fails to repay the trade credits, unfortunately, the shock is not limited to damage to only the seller because it propagates throughout the interfirm network. The shock is easily propagated because it is highly likely that the seller would also be unable to repay obligations to its own sellers. Since annual interfirm networks follow a scale-free network model, a single liquidity shock triggers a systemic risk. The insolvency of topologically more central buyer firms is shown to pose a higher potential risk to the financial market. In contrast, the firm size is not significantly related to potential risk. Therefore, firms with high centrality should be closely monitored to prevent insolvency crisis and propagation of the liquidity shock in the interfirm network.

Keywords: Systemic risk; Liquidity shock; Interfirm network; Trade credit (search for similar items in EconPapers)
JEL-codes: D85 G33 L14 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link) Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/10614/PS2

DOI: 10.1007/s10614-017-9648-x

Access Statistics for this article

Computational Economics is currently edited by Hans Amman

More articles in Computational Economics from Springer, Society for Computational Economics Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla ().

Page updated 2020-08-06
Handle: RePEc:kap:compec:v:51:y:2018:i:4:d:10.1007_s10614-017-9648-x