Trade credit and rm comovements
نویسنده
چکیده
Firms depend heavily on trade credit. In the years 1980-2004 about 60% of all inputs to production were purchased with a delayed payment. This paper provides evidence that trade credit connection plays signi cant role in the growth stability of customers by reducing the propagation of rm-level shocks from suppliers onto their customers. On average, customer experiences about 20% lower disruption to its sales from a shock to its supplier if credit linkage exists next to production linkage. In a tight network of customer-supplier relationships, a liquidity shock to one rm triggers a ow of liquidity from other parts of the network. Such a behavior of rms dampens shocks to any of the rms in such a liquidity rich networks. During recession we do not observe this dampening e ect anymore. In these periods, rms are short of liquidity and are unable to withstand a drop in trade credit provision.
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