RFS Advance Access published online on November 24, 2008
Review of Financial Studies, doi:10.1093/rfs/hhn096
What You Sell Is What You Lend? Explaining Trade Credit Contracts
Stockholm School of Economics, CEPR, and ECGI
Stockholm School of Economics, London School of Economics, CEPR, ECGI, and FMG
Stockholm School of Economics and CEPR
Send correspondence to Mariassunta Giannetti, Stockholm School of Economics, Box 6501, SE-113 83 Stockholm, Sweden; telephone: +46-8-7369607; fax: +46-8-31 23 27. e-mail: mariassunta.giannetti{at}hhs.se.
JEL Classification: G32
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Abstract |
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We relate trade credit to product characteristics and aspects of bank–firm relationships and document three main empirical regularities. First, the use of trade credit is associated with the nature of the transacted good. In particular, suppliers of differentiated products and services have larger accounts receivable than suppliers of standardized goods and firms buying more services receive cheaper trade credit for longer periods. Second, firms receiving trade credit secure financing from relatively uninformed banks. Third, a majority of the firms in our sample appear to receive trade credit at low cost. Additionally, firms that are more creditworthy and have some buyer market power receive larger early payment discounts.
We thank two anonymous referees, Allan Berger, Mike Cooper, Hans Degryse, Paolo Fulghieri (the editor), Ron Masulis, Mitchell Petersen, Greg Udell, and seminar participants at the RFS Conference on the Financial Management of Financial Intermediaries (Wharton), the European Finance Association (Zurich), the CEPR Summer Symposium in Financial Markets, the Chicago Fed Bank Structure Conference, the ECB Conference on Corporate Finance and Monetary Policy, the Financial Intermediation Research Society Conference (Shanghai), the University of Utah, Tilburg University, Norwegian School of Management and Business Administration (Bergen), the World Bank, the Bank of Sweden, and the Stockholm School of Economics for their comments. Financial support from the Jan Wallander och Tom Hedelius Foundation (Giannetti), the Riksbankens Jubileumsfond (Burkart and Ellingsen), and the Torsten and Ragnar Söderberg Foundation (Ellingsen) is gratefully acknowledged.