Trade Credit Contracts
This paper provides new evidence on the unique role of trade credit and contracting terms as a way for both sellers and buyers to mange business risk. The authors use a novel and unique dataset on almost 30,000 supplier contracts for 56 large buyer...
| Main Authors: | , , |
|---|---|
| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
|
| Subjects: | |
| Online Access: | http://hdl.handle.net/10986/3813 |
| id |
okr-10986-3813 |
|---|---|
| recordtype |
oai_dc |
| spelling |
okr-10986-38132017-12-14T09:01:22Z Trade Credit Contracts Klapper, Leora Laeven, Luc Rajan, Raghuram ACCESS TO CREDIT ACCESS TO FINANCING ACCOUNTS PAYABLE ACCOUNTS RECEIVABLE ACCOUNTS RECEIVABLES AFFILIATED ORGANIZATIONS ALTERNATIVE FINANCING ASYMMETRIC INFORMATION BALANCE SHEET BANK ACCOUNT BANK CREDIT BARGAINING POWER BILATERAL CONTRACT BOND BONDS BORROWING BORROWING COSTS BUSINESS RISK CAPITAL STRUCTURE CENTRAL BANK COLLATERAL COMPETITIVENESS CREDIT CONSTRAINED FIRMS CREDIT CONTRACT CREDIT CONTRACTS CREDIT COSTS CREDIT DEFAULTS CREDIT MARKET CREDIT PROVISION CREDIT RATIONING CREDIT RELATIONSHIPS CREDIT TERMS CREDITWORTHINESS CURRENCY CUSTOMER RELATIONSHIPS DEBT DEBT COLLECTORS DEBT MATURITY DEFAULT RISK DEPENDENT DEVELOPING COUNTRIES DISCOUNT RATE DISCRIMINATION DUMMY VARIABLE EXPLOITATION EXTERNAL FINANCING FEDERAL RESERVE FINANCIAL CRISES FINANCIAL DISTRESS FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIARIES FINANCIAL INTERMEDIARY FINANCIAL MANAGEMENT FINANCIAL MARKETS FINANCIAL SHOCKS FINANCIAL STUDIES FINANCIERS FINANCING CONSTRAINTS FINANCING COSTS FIXED COSTS FOREIGN COURTS INFORMAL CREDIT INFORMATION ASYMMETRIES INFORMATIONAL ASYMMETRIES INFORMATIONAL ASYMMETRY INSURANCE INTEREST RATE INTERNATIONAL BANK INTERNATIONAL FIRMS INVENTORY INVENTORY MANAGEMENT JURISDICTIONS LARGE FIRMS LIQUIDITY LOCAL BANK MARKET COMPETITION MARKET POWER MATURITIES MATURITY MERCHANDISE MERCHANDISE TRADE MONETARY FUND MULTINATIONAL MULTINATIONAL FIRMS NONPAYMENT PAYMENT TERMS PERISHABLE GOODS PREPAYMENT PRICE DISCRIMINATION PRODUCT QUALITY PROMPT PAYMENTS PROPRIETARY INFORMATION PURCHASING RETAIL RETAIL INDUSTRY RETAILING RISK MANAGEMENT RISK MANAGEMENT TOOL SALES SHORT-TERM FINANCING SMALL BUSINESS SMALL BUSINESS FINANCING SPREAD SUPPLIER SUPPLIERS SUPPLY CHAIN TOTAL SALES TRADE CREDIT TRANSACTION TURNOVER WORKING CAPITAL This paper provides new evidence on the unique role of trade credit and contracting terms as a way for both sellers and buyers to mange business risk. The authors use a novel and unique dataset on almost 30,000 supplier contracts for 56 large buyers and more than 24,000 suppliers in Europe and North America. The sample of buyers and suppliers includes firms of varying size, investment grade, and sectors. The paper finds evidence in support of four important, and not mutually exclusive, reasons for trade credit: 1) as a method of financing; 2) as a means of price discrimination; 3) as a bond assuring buyers of product quality; and 4) as a screening mechanism to gauge buyer default risk. In particular, the analysis finds that the largest and most creditworthy buyers receive contracts with the longest maturities, as measured by net days, from smaller, investment grade suppliers. In comparison, early payment discounts seem to be used as a risk management tool to limit the potential nonpayment risk of trade credit. Early payment discounts are generally offered to smaller, non-investment grade buyers. The results suggest that contract terms are jointly determined by supplier and buyer characteristics. 2012-03-19T18:40:17Z 2012-03-19T18:40:17Z 2010-06-01 http://hdl.handle.net/10986/3813 English Policy Research working paper ; no. WPS 5328 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper The World Region The World Region |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
World Bank |
| building |
World Bank Open Knowledge Repository |
| collection |
Online Access |
| language |
English |
| topic |
ACCESS TO CREDIT ACCESS TO FINANCING ACCOUNTS PAYABLE ACCOUNTS RECEIVABLE ACCOUNTS RECEIVABLES AFFILIATED ORGANIZATIONS ALTERNATIVE FINANCING ASYMMETRIC INFORMATION BALANCE SHEET BANK ACCOUNT BANK CREDIT BARGAINING POWER BILATERAL CONTRACT BOND BONDS BORROWING BORROWING COSTS BUSINESS RISK CAPITAL STRUCTURE CENTRAL BANK COLLATERAL COMPETITIVENESS CREDIT CONSTRAINED FIRMS CREDIT CONTRACT CREDIT CONTRACTS CREDIT COSTS CREDIT DEFAULTS CREDIT MARKET CREDIT PROVISION CREDIT RATIONING CREDIT RELATIONSHIPS CREDIT TERMS CREDITWORTHINESS CURRENCY CUSTOMER RELATIONSHIPS DEBT DEBT COLLECTORS DEBT MATURITY DEFAULT RISK DEPENDENT DEVELOPING COUNTRIES DISCOUNT RATE DISCRIMINATION DUMMY VARIABLE EXPLOITATION EXTERNAL FINANCING FEDERAL RESERVE FINANCIAL CRISES FINANCIAL DISTRESS FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIARIES FINANCIAL INTERMEDIARY FINANCIAL MANAGEMENT FINANCIAL MARKETS FINANCIAL SHOCKS FINANCIAL STUDIES FINANCIERS FINANCING CONSTRAINTS FINANCING COSTS FIXED COSTS FOREIGN COURTS INFORMAL CREDIT INFORMATION ASYMMETRIES INFORMATIONAL ASYMMETRIES INFORMATIONAL ASYMMETRY INSURANCE INTEREST RATE INTERNATIONAL BANK INTERNATIONAL FIRMS INVENTORY INVENTORY MANAGEMENT JURISDICTIONS LARGE FIRMS LIQUIDITY LOCAL BANK MARKET COMPETITION MARKET POWER MATURITIES MATURITY MERCHANDISE MERCHANDISE TRADE MONETARY FUND MULTINATIONAL MULTINATIONAL FIRMS NONPAYMENT PAYMENT TERMS PERISHABLE GOODS PREPAYMENT PRICE DISCRIMINATION PRODUCT QUALITY PROMPT PAYMENTS PROPRIETARY INFORMATION PURCHASING RETAIL RETAIL INDUSTRY RETAILING RISK MANAGEMENT RISK MANAGEMENT TOOL SALES SHORT-TERM FINANCING SMALL BUSINESS SMALL BUSINESS FINANCING SPREAD SUPPLIER SUPPLIERS SUPPLY CHAIN TOTAL SALES TRADE CREDIT TRANSACTION TURNOVER WORKING CAPITAL |
| spellingShingle |
ACCESS TO CREDIT ACCESS TO FINANCING ACCOUNTS PAYABLE ACCOUNTS RECEIVABLE ACCOUNTS RECEIVABLES AFFILIATED ORGANIZATIONS ALTERNATIVE FINANCING ASYMMETRIC INFORMATION BALANCE SHEET BANK ACCOUNT BANK CREDIT BARGAINING POWER BILATERAL CONTRACT BOND BONDS BORROWING BORROWING COSTS BUSINESS RISK CAPITAL STRUCTURE CENTRAL BANK COLLATERAL COMPETITIVENESS CREDIT CONSTRAINED FIRMS CREDIT CONTRACT CREDIT CONTRACTS CREDIT COSTS CREDIT DEFAULTS CREDIT MARKET CREDIT PROVISION CREDIT RATIONING CREDIT RELATIONSHIPS CREDIT TERMS CREDITWORTHINESS CURRENCY CUSTOMER RELATIONSHIPS DEBT DEBT COLLECTORS DEBT MATURITY DEFAULT RISK DEPENDENT DEVELOPING COUNTRIES DISCOUNT RATE DISCRIMINATION DUMMY VARIABLE EXPLOITATION EXTERNAL FINANCING FEDERAL RESERVE FINANCIAL CRISES FINANCIAL DISTRESS FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIARIES FINANCIAL INTERMEDIARY FINANCIAL MANAGEMENT FINANCIAL MARKETS FINANCIAL SHOCKS FINANCIAL STUDIES FINANCIERS FINANCING CONSTRAINTS FINANCING COSTS FIXED COSTS FOREIGN COURTS INFORMAL CREDIT INFORMATION ASYMMETRIES INFORMATIONAL ASYMMETRIES INFORMATIONAL ASYMMETRY INSURANCE INTEREST RATE INTERNATIONAL BANK INTERNATIONAL FIRMS INVENTORY INVENTORY MANAGEMENT JURISDICTIONS LARGE FIRMS LIQUIDITY LOCAL BANK MARKET COMPETITION MARKET POWER MATURITIES MATURITY MERCHANDISE MERCHANDISE TRADE MONETARY FUND MULTINATIONAL MULTINATIONAL FIRMS NONPAYMENT PAYMENT TERMS PERISHABLE GOODS PREPAYMENT PRICE DISCRIMINATION PRODUCT QUALITY PROMPT PAYMENTS PROPRIETARY INFORMATION PURCHASING RETAIL RETAIL INDUSTRY RETAILING RISK MANAGEMENT RISK MANAGEMENT TOOL SALES SHORT-TERM FINANCING SMALL BUSINESS SMALL BUSINESS FINANCING SPREAD SUPPLIER SUPPLIERS SUPPLY CHAIN TOTAL SALES TRADE CREDIT TRANSACTION TURNOVER WORKING CAPITAL Klapper, Leora Laeven, Luc Rajan, Raghuram Trade Credit Contracts |
| geographic_facet |
The World Region The World Region |
| relation |
Policy Research working paper ; no. WPS 5328 |
| description |
This paper provides new evidence on the
unique role of trade credit and contracting terms as a way
for both sellers and buyers to mange business risk. The
authors use a novel and unique dataset on almost 30,000
supplier contracts for 56 large buyers and more than 24,000
suppliers in Europe and North America. The sample of buyers
and suppliers includes firms of varying size, investment
grade, and sectors. The paper finds evidence in support of
four important, and not mutually exclusive, reasons for
trade credit: 1) as a method of financing; 2) as a means of
price discrimination; 3) as a bond assuring buyers of
product quality; and 4) as a screening mechanism to gauge
buyer default risk. In particular, the analysis finds that
the largest and most creditworthy buyers receive contracts
with the longest maturities, as measured by net days, from
smaller, investment grade suppliers. In comparison, early
payment discounts seem to be used as a risk management tool
to limit the potential nonpayment risk of trade credit.
Early payment discounts are generally offered to smaller,
non-investment grade buyers. The results suggest that
contract terms are jointly determined by supplier and buyer characteristics. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Klapper, Leora Laeven, Luc Rajan, Raghuram |
| author_facet |
Klapper, Leora Laeven, Luc Rajan, Raghuram |
| author_sort |
Klapper, Leora |
| title |
Trade Credit Contracts |
| title_short |
Trade Credit Contracts |
| title_full |
Trade Credit Contracts |
| title_fullStr |
Trade Credit Contracts |
| title_full_unstemmed |
Trade Credit Contracts |
| title_sort |
trade credit contracts |
| publishDate |
2012 |
| url |
http://hdl.handle.net/10986/3813 |
| _version_ |
1610770104889376768 |