Template-type: ReDif-Paper 1.0
Author-Name: Bams, Dennis
Author-workplace-name: Finance, RS: GSBE EFME
Author-Name: Bos, Jaap
Author-workplace-name: Finance, RS: GSBE EFME
Author-Name: Pisa, Magdalena
Title: Trade credit: Elusive insurance of firm growth
Abstract: Firms depend heavily on trade credit. This paper introduces a trade credit network into a structural model of the economy. In an empirical analysis of the model, we find that trade credit is an elusive insurance: as long as a firm is financially unconstrained and times are good, more trade credit enhances sales stability and insures against shocks to the firm’s suppliers. However, if a firm becomes financially constrained or times are bad, trade credit fails to insure against supplier shocks. Moreover, if the firm is low on cash, trade credit propagates shocks from a supplier to its customer.
Classification-JEL: e32,g32,l14
Series: GSBE Research Memoranda
Creation-Date: 20160101
Number: 029
File-URL: https://cris.maastrichtuniversity.nl/ws/files/4969944/RM16029.pdf
File-Format: application/pdf
File-Size: 715778
Handle: Repec:unm:umagsb:2016029
DOI: 10.26481/umagsb.2016029