Customer Market Power and the Provision of Trade Credit
Customer Market Power and the Provision of Trade Credit

Author: Neeltje van Horen

Publisher: World Bank Publications

Published: 2007

Total Pages: 27

ISBN-13:

DOWNLOAD EBOOK

Statistics show that the sale of goods on credit is widespread among firms even when they are capital constrained and thus face relatively high costs in providing trade credit. This study provides an explanation for this by arguing that customers who possess strong market power are able to increase their customer surplus by demanding to purchase the goods on credit. This gain in customer surplus increases with the degree of asymmetric information between buyer and seller with respect to product quality. Therefore, firms that are perceived as risky are especially subject to the market power of the customer and have to sell their goods on credit. Using detailed firm-level data from a large number of firms in Eastern Europe and Central Asia, this study finds evidence consistent with this hypothesis. It finds a strong positive correlation between customer market power and trade credit provision. Furthermore, this relationship is especially strong when the supplier is more risky and in countries with limited financial sector development or a weak legal system.

Customer Market Power and the Provision of Trade Credit
Customer Market Power and the Provision of Trade Credit

Author: Neeltje van Horen

Publisher:

Published: 2016

Total Pages: 27

ISBN-13:

DOWNLOAD EBOOK

Statistics show that the sale of goods on credit is widespread among firms even when they are capital constrained and thus face relatively high costs in providing trade credit. This study provides an explanation for this by arguing that customers who possess strong market power are able to increase their customer surplus by demanding to purchase the goods on credit. This gain in customer surplus increases with the degree of asymmetric information between buyer and seller with respect to product quality. Therefore, firms that are perceived as risky are especially subject to the market power of the customer and have to sell their goods on credit. Using detailed firm-level data from a large number of firms in Eastern Europe and Central Asia, this study finds evidence consistent with this hypothesis. It finds a strong positive correlation between customer market power and trade credit provision. Furthermore, this relationship is especially strong when the supplier is more risky and in countries with limited financial sector development or a weak legal system.

Market Power and the Matching of Trade Credit Terms
Market Power and the Matching of Trade Credit Terms

Author: Daniela Fabbri

Publisher:

Published: 2016

Total Pages: 52

ISBN-13:

DOWNLOAD EBOOK

This paper studies the decision of firms to extend trade credit to customers and its relation with their financing decisions. The authors use a novel firm-level database of Chinese SMEs with unique information on market power in both output and input markets and on the amount, terms, and payment history of trade credit simultaneously extended to customers (accounts receivable) and received from suppliers (accounts payable). The analysis shows that suppliers with relatively weaker market power are more likely to extend trade credit and have a larger share of goods sold on credit. Examination of the importance of financial constraints reveals that access to bank financing and profitability are not significantly related to trade credit supply. Rather, firms that receive trade credit from their own suppliers are more likely to extend trade credit to their customers, and to quot;match maturityquot; between the contract terms of payables and receivables. This matching practice is more likely used when firms face strong competition in the product market (relative to their customers), and enjoy strong market power in the input market (relative to their suppliers). These results highlight the importance of supply chain financing for market competition and risk management in credit constrained firms.

Market Power and the Matching of Trade Credit Terms
Market Power and the Matching of Trade Credit Terms

Author:

Publisher:

Published: 2008

Total Pages:

ISBN-13:

DOWNLOAD EBOOK

"This paper studies the decision of firms to extend trade credit to customers and its relation with their financing decisions. The authors use a novel firm-level database of Chinese SMEs with unique information on market power in both output and input markets and on the amount, terms, and payment history of trade credit simultaneously extended to customers (accounts receivable) and received from suppliers (accounts payable). The analysis shows that suppliers with relatively weaker market power are more likely to extend trade credit and have a larger share of goods sold on credit. Examination of the importance of financial constraints reveals that access to bank financing and profitability are not significantly related to trade credit supply. Rather, firms that receive trade credit from their own suppliers are more likely to extend trade credit to their customers, and to "match maturity" between the contract terms of payables and receivables. This matching practice is more likely used when firms face strong competition in the product market (relative to their customers), and enjoy strong market power in the input market (relative to their suppliers). These results highlight the importance of supply chain financing for market competition and risk management in credit constrained firms."--World Bank web site.

formal versus informal finance: evidence from china
formal versus informal finance: evidence from china

Author: Vojislav Maksimovic

Publisher: World Bank Publications

Published: 2008

Total Pages: 77

ISBN-13:

DOWNLOAD EBOOK

Abstract: China is often mentioned as a counterexample to the findings in the finance and growth literature since, despite the weaknesses in its banking system, it is one of the fastest growing economies in the world. The fast growth of Chinese private sector firms is taken as evidence that it is alternative financing and governance mechanisms that support China's growth. This paper takes a closer look at firm financing patterns and growth using a database of 2,400 Chinese firms. The authors find that a relatively small percentage of firms in the sample utilize formal bank finance with a much greater reliance on informal sources. However, the results suggest that despite its weaknesses, financing from the formal financial system is associated with faster firm growth, whereas fund raising from alternative channels is not. Using a selection model, the authors find no evidence that these results arise because of the selection of firms that have access to the formal financial system. Although firms report bank corruption, there is no evidence that it significantly affects the allocation of credit or the performance of firms that receive the credit. The findings suggest that the role of reputation and relationship based financing and governance mechanisms in financing the fastest growing firms in China is likely to be overestimated.

Trade credit, financial intermediary development, and industry growth
Trade credit, financial intermediary development, and industry growth

Author: Raymond Fisman

Publisher: World Bank Publications

Published: 2001

Total Pages: 34

ISBN-13:

DOWNLOAD EBOOK

Where do firms turn for financing in countries with poorly developed financial markets? One source is trade credit. And where formal financial intermediaries are deficient, industries that rely more on this source of financing grow faster.

Trade Credit and Financing Instruments
Trade Credit and Financing Instruments

Author: Lucia Gibilaro

Publisher: Business Expert Press

Published: 2018-12-18

Total Pages: 136

ISBN-13: 1948976021

DOWNLOAD EBOOK

This book offers managers a complete analysis of the various facets of commercial credit and presents an analysis of the various types of markets, instruments, and risks associated with trade credit in supply chains across the globe. Trade credit is extensively used in both domestic and international commercial transactions. Although it clearly supports growth, its significance is even greater for developed countries, where the market has recovered remarkably since the global financial crisis. The number and heterogeneity of motivations to trade credit justify the variability observed in the data on global trading, and the role of trade credit has become crucial in supply chain coordination. A range of diverse trade credit finance solutions are available and include products and services offered by financial intermediaries and market products, highlighting a very interesting set of intermediate solutions that have emerged as a result of new technologies utilized in financial services. For financiers trade credit is an attractive option, but an in-depth evaluation of the possibility of losses forms the basis of a deep understating of numerous sources that can create credit risk (default and dilution risk). This book offers managers a complete analysis of the various facets of commercial credit and presents an analysis of the various types of markets, instruments, and risks associated with trade credit in supply chains across the globe.

Trade Credit and Bank Credit
Trade Credit and Bank Credit

Author: Inessa Love

Publisher: World Bank Publications

Published: 2005

Total Pages: 34

ISBN-13:

DOWNLOAD EBOOK

"The authors study the effect of financial crises on trade credit in a sample of 890 firms in six emerging economies. They find that although provision of trade credit increases right after the crisis, it consequently collapses in the following months and years. The authors observe that firms with weaker financial position (for example, high pre-crisis level of short-term debt and low cash stocks and cash flows) are more likely to reduce trade credit provided to their customers. This suggests that the decline in aggregate credit provision is driven by the reduction in the supply of trade credit, which follows the bank credit crunch. The results are consistent with the "redistribution view" of trade credit provision, in which bank credit is redistributed by way of trade credit by the firms with stronger financial position to the firms with weaker financial stand "--World Bank web site.

Trade Credit and Bank Credit
Trade Credit and Bank Credit

Author: Inessa Love

Publisher: World Bank Publications

Published: 2005

Total Pages: 34

ISBN-13:

DOWNLOAD EBOOK

"The authors study the effect of financial crises on trade credit in a sample of 890 firms in six emerging economies. They find that although provision of trade credit increases right after the crisis, it consequently collapses in the following months and years. The authors observe that firms with weaker financial position (for example, high pre-crisis level of short-term debt and low cash stocks and cash flows) are more likely to reduce trade credit provided to their customers. This suggests that the decline in aggregate credit provision is driven by the reduction in the supply of trade credit, which follows the bank credit crunch. The results are consistent with the "redistribution view" of trade credit provision, in which bank credit is redistributed by way of trade credit by the firms with stronger financial position to the firms with weaker financial stand "--World Bank web site.

The Provision and Impact of Trade Credit in Imbalanced Supply Chain
The Provision and Impact of Trade Credit in Imbalanced Supply Chain

Author: Jianer Zhou

Publisher:

Published: 2012

Total Pages: 0

ISBN-13:

DOWNLOAD EBOOK

Trade credit plays an important role in facilitating trades in supply chains. Using large datasets that link U.S. suppliers with their major customers, we show trade credit to be a collaborative and competitive tool from the view of financing collaboration, relationship lending, and horizontal and vertical competition. In particular, we find that while suppliers with smaller market share extend more trade credit to be competitive, suppliers with weaker bargaining power relative to their major customers reduce trade credit to mitigate financing risk. We further investigate trade credit impacts at both the industry and firm levels. When firms use trade credit at their industry-average level (as a collaborative tool), their sales increase with the industry trade credit level; conversely, when they are more aggressive in their trade credit strategy (as a competitive tool), they could carry excessive inventories and manipulate price to improve their gross margins, but a rising price could limit their sales growth. These results raise a serious concern for the effectiveness of overextending trade credit in supply chains.