Repayment Enforcement and Informational Advantages: Empirical determinants of trade credit use

Author Name UCHIDA Hirofumi  (Graduate School of Business Administration, Kobe University) /UESUGI Iichiro  (Senior Fellow, RIETI / Ministry of Economy, Trade and Industry) /HOTEI Masaki  (Policy Research Institute, Ministry of Finance)
Creation Date/NO. August 2010 10-E-041
Research Project Study Group on Changes in Financial and Industrial Structures
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Using unique data we test various trade credit theories and find the following. First, the length of a buyer-seller relationship has a positive impact on the use of trade credit, especially for longer-term credit. In contrast, short-term trade credit is extended based on buyers’ hard information. Second, trade credit is more frequently used for transactions in differentiated goods, and the relative bargaining power between the buyer and the seller also matters for the use/non-use of trade credit. Third, we find that the reduction of transaction costs is an important determinant of the use of trade credit. We interpret these findings in light of various theories of trade credit.