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Trade Credit and Pricing:An Empirical Evaluation

Niklas Amberg (), Tor Jacobson () and Erik von Schedvin
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Tor Jacobson: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

No 354, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: We empirically investigate the proposition that firms charge premia on cash prices in transactions involving trade credit. Using a comprehensive Swedish panel dataset on product-level transaction prices and firm-characteristics, we relate trade credit issuance to price setting. In a recession characterized by tightened credit conditions, we find that prices increase significantly more on products sold by firms issuing more trade credit, reflecting their larger exposures to increased funding costs and counterparty risks. Our results thus demonstrate the importance of trade credit for price setting and show that trade credit issuance induces a channel through which financial frictions affect prices.

Keywords: Trade credit; prices; inflation; liquidity; counterparty risk (search for similar items in EconPapers)
JEL-codes: D22 E31 E32 G30 L11 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2018-06-01
New Economics Papers: this item is included in nep-eur and nep-mac
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