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What You Sell is What You Lend? Explaining Trade Credit Contracts

Mike Burkart (), Tore Ellingsen () and Mariassunta Giannetti

No 4823, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We use a broad range of contractual information to assess the empirical relevance of different financial theories of trade credit. The common feature of all financial theories is that suppliers have an advantage over other lenders in financing credit-constrained firms. While the reasons for the financing advantage differ across theories, they are usually related either to product characteristics or to market structure. We propose a novel identifying strategy that exploits this insight to analyse the trade credit volume and the contract terms. Our analysis suggests that the most important product characteristic for explaining trade credit volume and contract terms is the ease with which the seller’s product can be diverted. Market power in input and output markets also contributes to explain trade credit patterns.

Keywords: collateral; contract theory; moral hazard; trade credits (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-fin, nep-fmk and nep-int
Date: 2004-12
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Related works:
Journal Article: What You Sell Is What You Lend? Explaining Trade Credit Contracts (2011) Downloads
Working Paper: What you sell is what you lend? Explaining trade credit contracts (2011) Downloads
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