Measuring the Systemic Risk in Interfirm Transaction Networks

Makoto Hazama and Iichiro Uesugi

No 20, Working Paper Series from Center for Interfirm Network, Institute of Economic Research, Hitotsubashi University

Abstract: Using a unique and massive data set that contains information on interfirm transaction relationships, we examine default propagation along the trade credit channel and for the first time provide direct and systematic evidence of its existence and relevance. Not only do we implement simulations in order to detect prospective defaulters, we also estimate the probabilities of actual firm bankruptcies and compare the predicted defaults and actual defaults. We find, first, that an economically sizable number of firms are predicted to fail when their customers default on their trade debt. Second, these prospective defaulters are indeed more likely to go bankrupt than other firms. Third, a certain type of firm-bank relationships, in which a bank extends loans to many of the firms in the same supply chain, significantly reduces firms' bankruptcy probability, providing evidence for the existence and relevance of ”deep pockets” as documented in Kiyotaki and Moore (1997).

Keywords: interfirm networks; trade credit; default propagation (search for similar items in EconPapers)
JEL-codes: E32 G21 G32 G33 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2012-12
New Economics Papers: this item is included in nep-ban, nep-mac and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/25354/ifn_wp020.pdf

Related works:
Journal Article: Measuring the systemic risk in interfirm transaction networks (2017)
Working Paper: Measuring the Systemic Risk in Interfirm Transaction Networks (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:hit:cinwps:20

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