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Trade Credit Use as Firms Approach Default

Emilia Garcia‐appendini and Judit Montoriol‐garriga
Authors registered in the RePEc Author Service: Emilia Garcia-Appendini () and Judit Montoriol Garriga ()

Journal of Money, Credit and Banking, 2020, vol. 52, issue 5, 1199-1229

Abstract: Using a sample of distressed firms with information about suppliers, we document an average fall in the use of trade credit as firms approach bankruptcy compared to a control sample of nonbankrupt firms. However, we uncover a large degree of heterogeneity across suppliers. Suppliers facing high switching costs maintain their business ties with the distressed firms as they approach bankruptcy, and provide them more trade credit. Suppliers in concentrated markets provide temporary support to their clients. Overall, the findings of this paper suggest that switching costs are fundamental to explain whether suppliers provide liquidity to their distressed clients or not.

Date: 2020
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https://doi.org/10.1111/jmcb.12618

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:52:y:2020:i:5:p:1199-1229

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Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West

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