Supply Chain Disruptions and Trade Credit

Author Name LU Yi (Tsinghua University) / OGURA Yoshiaki (Waseda University) / TODO Yasuyuki (Faculty Fellow, RIETI) / ZHU Lianming (Waseda University)
Creation Date/NO. March 2017 17-E-054
Research Project Firms' Domestic and International Networks
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It has been shown that input-output linkages along supply chains affect firms' performance such as sales, productivity, and innovative capacity. This paper explores a new aspect in the literature, examining how supply chain relations influence financial transactions between firms. More specifically, this paper, using an exhaustive dataset on buyer-supplier networks in Japan, studies whether supply chain disruptions due to the Great East Japan earthquake in 2011 affected firms' utilization of trade credit. We find evidence showing that customers who were affected by the earthquake imposed a larger amount of trade credit on their suppliers (i.e., utilized fewer cash transactions) even two years after the earthquake. In addition, trade credit of indirect suppliers (e.g., suppliers of suppliers) of affected customers also increased, indicating that the effect of supply chain disruptions on trade credit propagates through production linkages. We further find heterogeneous effects of the supply chain disruptions on firms' trade credit; the effect is larger for suppliers with a better financial performance before the disaster.