Trade credit and the joint effects of supplier and customer financial characteristics |
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| Institution: | 1. Bank of Finland, PO Box 160, 00101 Helsinki, Finland;2. Bank of Finland, PO Box 160, 00100 Helsinki, Finland and University of Turku, Finland;1. Campus Saint-Jean, University of Alberta, Edmonton, AB T6C 4G9, Canada;2. Nottingham University Business School (NUBS) China, 199 Taikangdong Road, Ningbo, Zhejiang 315100, China |
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| Abstract: | We examine how access to bank credit affects trade credit in the supplier–customer relationships of U.S. public firms. For identification, we use exogenous liquidity shocks to supplier firms in the form of staggered changes to interstate bank branching laws. Using a variety of tests, we show that supplier firms with greater access to banking liquidity offer more trade credit to their customers. We also show that when bank branching restrictions are relaxed in the supplier’s state, the supplier–customer relationship is more likely to survive. |
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| Keywords: | Trade credit Supplier–customer relationships Bank lines of credit Banking deregulation Contagion Financial distress |
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