Curbing Shocks to Corporate Liquidity: The Role of Trade Credit

Niklas Amberg, Tor Jacobson, Erik von Schedvin and Robert Townsend

Journal of Political Economy, 2021, vol. 129, issue 1, 182 - 242

Abstract: Using data on liquidity shortfalls generated by the fraud and failure of a cash-in-transit firm, we demonstrate effects on firms’ trade credit usage. We find that firms manage liquidity shortages by increasing the amount of credit drawn from suppliers and decreasing the amount issued to customers. The compounded trade credit adjustments are on average of similar magnitude as corresponding adjustments in cash holdings, suggesting that trade credit positions are economically important sources of reserve liquidity for firms. The underlying mechanism in trade credit adjustments is in part due to shifts in overdue payments.

Date: 2021
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Related works:
Working Paper: Curbing Shocks to Corporate Liquidity: The Role of Trade Credit (2016)
Working Paper: Curbing Shocks to Corporate Liquidity: The Role of Trade Credit (2016)
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