Bargaining power and trade credit |
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| Institution: | 1. Cass Business School, City University London, London EC1Y 8TZ, UK;2. The World Bank, Development Research Group, 1818 H St NW, Washington, DC 20433, United States;1. University of Bahrain, POB 32038, Sakheer, Bahrain;2. Alliance Manchester Business School, University of Manchester, Manchester M15 6PB, UK;1. Institute of Banking and Finance, National Kaohsiung First University of Science and Technology, 2 Jhuoyue Road, Nanzih, Kaohsiung City 811, Taiwan;2. Department of Finance, National Kaohsiung First University of Science and Technology, 2 Jhuoyue Road, Nanzih, Kaohsiung City 811, Taiwan;1. DCU Business School, Dublin, Ireland;2. UCD Smurfit Graduate Business School, Dublin, Ireland;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: | This paper investigates how the supplier's bargaining power affects trade credit supply. We use a novel firm-level database of Chinese firms with unique information on the amount, terms, and payment history of trade credit extended to customers and detailed information on product market structure and clients-supplier relationships. We document that suppliers with weak bargaining power towards their customers are more likely to extend trade credit, have a larger share of goods sold on credit, and offer a longer payment period before imposing penalties. Important customers extend the payment period beyond what has been offered by their supplier and generate overdue payments. Furthermore, weak bargaining power suppliers are less likely to offer trade credit when credit-constrained by banks. Our findings suggest that suppliers use trade credit as a competitive device in the product market. |
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