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Trade credit use as firms approach default


Garcia-Appendini, Emilia; Montoriol-Garriga, Judit (2020). Trade credit use as firms approach default. Journal of Money, Credit and Banking, 52(5):1199-1229.

Abstract

Using a sample of distressed firms with information about suppliers, we document an average fall in the use of trade credit as firms approach bank-ruptcy compared to a control sample of non-bankrupt firms. However, we uncover a large degree of heterogeneity across suppliers. Suppliers facing high switching costs maintain their business ties with the distressed firms as they approach bankruptcy, and provide them more trade credit. Suppliers in concentrated markets provide temporary support to their clients. Overall, the findings of this paper show that switching costs are fundamental to ex-plain whether suppliers provide liquidity to their distressed clients or not.

Abstract

Using a sample of distressed firms with information about suppliers, we document an average fall in the use of trade credit as firms approach bank-ruptcy compared to a control sample of non-bankrupt firms. However, we uncover a large degree of heterogeneity across suppliers. Suppliers facing high switching costs maintain their business ties with the distressed firms as they approach bankruptcy, and provide them more trade credit. Suppliers in concentrated markets provide temporary support to their clients. Overall, the findings of this paper show that switching costs are fundamental to ex-plain whether suppliers provide liquidity to their distressed clients or not.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > Accounting
Social Sciences & Humanities > Finance
Social Sciences & Humanities > Economics and Econometrics
Language:English
Date:1 August 2020
Deposited On:16 Nov 2020 18:04
Last Modified:16 Nov 2020 18:14
Publisher:Wiley-Blackwell Publishing, Inc.
ISSN:0022-2879
OA Status:Closed
Publisher DOI:https://doi.org/10.1111/jmcb.12618
Related URLs:https://onlinelibrary.wiley.com/doi/abs/10.1111/jmcb.12618 (Publisher)
Other Identification Number:merlin-id:17776

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