Scandinavian Working Papers in Economics
Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)
No 320: Curbing Shocks to Corporate Liquidity: The Role of Trade Credit
Niklas Amberg (), Tor Jacobson (), Erik von Schedvin () and Robert Townsend ()
Additional contact information
Niklas Amberg: Department of Economics, Postal: Stockholm School of Economics, Sveavägen 65, 113 83 Stockholm
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
Robert Townsend: Department of Economics, Postal: 77 Massachusetts Ave, Cambridge, MA 02139,, USA
Abstract: Using data on exogenous liquidity losses generated by the fraud and failure of a cash-intransit firm, we demonstrate a causal impact on firms’ trade credit usage. We find that firms manage liquidity shortfalls by increasing the amount of drawn credit from suppliers and decreasing the amount issued to customers. The compounded trade credit adjustments are at least as great, if not greater than corresponding adjustments in cash holdings, suggesting that trade credit positions are economically important sources of reserve liquidity. The underlying mechanism in trade credit adjustments is in part due to shifts in credit durations—both upstream and downstream.
Keywords: Liquidity management; Trade credit; Risk sharing
53 pages, May 1, 2016
Full text files
rap_wp320_160512.pdf
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