Scandinavian Working Papers in Economics

Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

No 354: Trade Credit and Pricing:An Empirical Evaluation

Niklas Amberg (), Tor Jacobson () and Erik von Schedvin ()
Additional contact information
Niklas Amberg: Department of Finance, Postal: Stockholm School of Economics, Box 6501, 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 empirically investigate the proposition that firms charge premia on cash prices in transactions involving trade credit. Using a comprehensive Swedish panel dataset on product-level transaction prices and firm-characteristics, we relate trade credit issuance to price setting. In a recession characterized by tightened credit conditions, we find that prices increase significantly more on products sold by firms issuing more trade credit, reflecting their larger exposures to increased funding costs and counterparty risks. Our results thus demonstrate the importance of trade credit for price setting and show that trade credit issuance induces a channel through which financial frictions affect prices.

Keywords: Trade credit; prices; inflation; liquidity; counterparty risk

JEL-codes: D22; E31; E32; G30; L11

38 pages, June 1, 2018

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