Trade Credit as a Competitiveness Tool;Evidence from Developing Countries

Neeltje Van Horen ()

MPRA Paper from University Library of Munich, Germany

Abstract: Statistics show that the sale of goods on credit is widespread among firms even when they are financially constrained and thus face relatively high costs in providing trade credit. A possible explanation for this is the use of trade credit as a competitiveness tool. By analyzing both the impact of customer as well as producer market power on a firm’s decision to provide trade credit, we examine whether trade credit is indeed used as a way to lock in customers by firms in developing countries. Using a new dataset containing a large number of firms in 42 developing countries, we find strong evidence that an important driving force behind the decision to provide trade credit is the urge to be competitive. This especially holds for those firms that still have to establish a solid market reputation and for firms located in countries with an underdeveloped banking sector.

JEL-codes: L10 L14 (search for similar items in EconPapers)
Date: 2004-06, Revised 2005-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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