This paper uses a vertical relational contract between two firms to explore the implications of trade credit when the ability to repay is not observed by the supplier.  Trade credit limits the supplier's possibilities to punish the cashless downstream firms and termination may be used in...

The purpose of this paper is to analyze the impact of trust-based relations on firm’s performance in transition economies. The trade credit variable is used as a proxy of trust-based relations and the propensity score matching method is employed to establish casual link between relational...

In 2008, companies prepared for the entry into force of the Law on the Modernisation of the Economy (LME) by sharply reducing their payment periods. Going forward, this Law should limit the risk of chains of failures.

In this paper we examine trade credit terms in Italy on the basis of two original surveys carried out by the Bank of Italy. The surveys show that 80-90 per cents of sales are paid on a deferred payment basis of 90 days on average and a delay of 11 days. 83 per cent of trade credit is extended on...

The paper investigates optimal financial contracts when investment in pledgeable assets is endogenous and not observable to financiers. In a setting with uncertainty, two inputs with different collateral value and investment unobservability, we show that a firm-bank secured credit contract is...

The paper proposes a model of collateralized bank and trade credit. Firms use a two-input technology. Assuming that the supplier is better able to extract value from existing assets and has an information advantage over other creditors, the paper derives a series of predictions. (1) Financially...

Trade credit arises from delayed payments between firms. It is not easy to identify its determinants since they are connected to organisational,technical, commercial and financial factors.In this paper we empirically examine the determinants of the usage of trade credit by Italian industrial...

Payment periods have significantly shortened since the LME came into effect. In 2010, this trend continued, albeit at a slower pace. There is still a high risk of companies passing on cash flow difficulties to other companies.