Scandinavian Working Papers in Economics
Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)
No 315: Trade Credit: Contract-Level Evidence Contradicts Current Theories
Tore Ellingsen (), Tor Jacobson () and Erik von Schedvin ()
Additional contact information
Tore Ellingsen: Stockholm School of Economics, Postal: Box 6501, Sveavägen 65, SE-113 83 Stockholm, Sweden
Tor Jacobson: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Erik von Schedvin: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Abstract: We study 52 million trade credit contracts, issued by 51 suppliers over 9 years to about 199,000 unique customers. The data contain information on contract size, due dates, actual time to payment, and firm characteristics. Our empirical analysis contradicts the conventional view that trade credit is an inferior source of funding. Specifically, while we replicate the usual finding that payables are negatively related to customers’ financial strength, our disaggregated data reveal that improvements in customers’ financial conditions are primarily associated with a reduced value of input purchases rather than smaller trade credit usage. In fact, customers’ financial conditions are unrelated to agreed contract duration and only modestly affect overdue payments. Moreover, the customer’s size and share of the supplier’s sales both have a positive impact on the due date. Overall, the evidence indicates that customers prefer trade credit over other available sources of funding and thus calls for a new theory of short-term finance.
Keywords: Trade credit; Credit contracts; Financing constraints
46 pages, January 1, 2016
Full text files
rap_wp315_160126.pdf
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