Does Competition Encourage Credit Provision? Evidence from African Trade Credit Relationships

Raymond Fisman and Mayank Raturi

No 9659, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Previous work has claimed that monopoly power facilitates the provision of credit, since monopolists are better able to enforce payment. Here, we argue that if relationship-specific investments are required by borrowers to establish creditworthiness, monopoly power may reduce credit provision because hold up problems ex post will deter borrowers from investing in establishing creditworthiness. Empirically, we examine the relationship between monopoly power and credit provision, using data on the supply relationships of firms in five African countries. Consistent with the upfront investment story, we find that monopoly power is negatively associated with credit provision, and that this correlation is stronger in older supplier relationships. Because the data include several observations per firm, we are able to utilize firm fixed-effects, thus netting out unobserved firm characteristics that may have been driving results in earlier studies.

JEL-codes: L12 L14 (search for similar items in EconPapers)
Date: 2003-04
New Economics Papers: this item is included in nep-com, nep-fin and nep-mfd
Note: CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published as Fisman, Raymond and Mayank Raturi. "Does Competition Encourage Credit Provision? Evidence from African Trade Credit Relationships." The Review of Economics and Statistics 86, 1 (February 2004): 345-352.

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