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| Author: | Fabbri, D. Menichini, A. M. C. |
| Title: | Trade credit, collateral liquidation, and borrowing constraints |
| Journal: | Journal of Financial Economics
2010 : JUN, VOL 96:3, p. 413-432 |
| Index terms: | credit assets liquidation |
| Language: | eng |
| Abstract: | The article derives six predictions on the use of trade credit, under the assumption that suppliers benefit from the liquidation of company's assets in the case of default and that they have information advantage over other creditors. The predictions are: 1) Financially unconstrained companies take trade credit to benefit from suppliers liquidation advantage. 2) Credit rationing does not affect the reliance of trade credit, if inputs purchased on account are liquid enough. 3) Firms that buy goods use more credit than those that buy services, but goods suppliers offer less credit than service suppliers. 4) Suppliers lend inputs rather than cash to their customers. 5) Stronger trade credit reliance relates with more intensive use of tangible inputs. And 6) the use of trade credit and input tangibility are decreased by sufficient creditor protection. |
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