We develop a theoretical model to explain the impact of market power in the product market and financial constraints on trade credit extension. Our model is based on a rational profit maximizing firm operating with a certain level of market power represented by the price elasticity of its...

We extend the theoretical model of external corporate financing to the case when the buyers of the borrowing firm may default during the financing period. In our setup there is an asymmetric information and hence moral hazard between the lender and the borrower concerning the effrts of the...

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...

How do shocks to the banking sector travel through the corporate economy? Using a novel dataset of inter-firm sales, I show that suppliers exposed to a large and exogenous decline in bank financing pass this liquidity shock to their downstream customers. The spillover effect occurs through two...

In this study we investigate how executive equity incentives affect companies' risk-taking behavior in relationships with their customers. We hypothesize and find that executive risk-taking incentives provided by options are positively related to the degree of trade credit riskiness measured...

This paper provides a detailed empirical study on the use of advance payments by firms. It establishes that some trade credit theories can also be applied to prepayment. The results, obtained from a large panel data set, suggest that financially stronger customers fund the production of their...

Trade credit is differentiated from other lending channels by the underlying sales relationship. Using a unique hand-collected dataset of customer-supplier-matched trade credit, I examine how the importance of a customer's sales to its supplier affects trade credit decisions. Contrary to...

During the transition period from a planned economy to a market economy in the 1990s of China, there was a considerable accrual of deferred payment, and default due to inferior enforcement institutions. This is a very common phenomenon in the transition economies at that time. The Chinese...

We document the importance of loan covenants to observed hedging outcomes, by studying lending agreements and derivative positions of U.S. oil and gas producers. The emergence of fracking technology was accompanied by sharp increases in capital spending and borrowing. The contracts involved...