Trade Creditors’ Information Advantage

Victoria Ivashina and Benjamin Iverson

No 24269, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using information on the sales of debt claims for 132 U.S. Chapter 11 bankruptcy cases, we show that large trade creditors’ decisions to sell receivables of a distressed company in bankruptcy are predictive of lower recovery rates, and that in such cases these creditors sell ahead of less informed suppliers and other creditors. This result is especially pronounced for more opaque distressed firms, when trade creditors’ information advantage is likely largest. This evidence shows that suppliers that extend significant amounts of trade credit hold private information about their trade partners. Trade creditors who are geographically closer or in similar industries tend to lend the most, suggesting that these are two channels through which suppliers hold an information advantage.

JEL-codes: D22 G32 G33 (search for similar items in EconPapers)
Date: 2018-01
New Economics Papers: this item is included in nep-cfn
Note: CF
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