Access to Debt and the Provision of Trade Credit

54 Pages Posted: 23 Nov 2021 Last revised: 28 Aug 2022

See all articles by Matthew T. Billett

Matthew T. Billett

Indiana University - Kelley School of Business - Department of Finance

Kayla Freeman

University of Georgia, Terry College of Business, Department of Finance

Janet Gao

McDonough School of Business

Date Written: August 26, 2022

Abstract

We examine how access to debt markets affects firms' provision of trade credit. Using hand-collected data on trade credit between customer-supplier pairs, we show that increased access to debt strengthens firms' bargaining power relative to major customers and reduces the trade credit they provide to those customers. We establish causality using the staggered passage of anti-recharacterization laws that increased firms’ debt capacity. Affected firms expand their customer base, reduce customer concentration, and decrease trade credit to powerful customers. The decline in trade credit leads customers to cut investment, increase leverage, and scale back trade credit provision to firms further downstream.

Keywords: Trade Credit, Access to Debt, Creditor Rights, Supply-Chain, Bargaining Power

JEL Classification: G32, G33, L14

Suggested Citation

Billett, Matthew T. and Freeman, Kayla and Gao, Janet, Access to Debt and the Provision of Trade Credit (August 26, 2022). Available at SSRN: https://ssrn.com/abstract=3966713 or http://dx.doi.org/10.2139/ssrn.3966713

Matthew T. Billett

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3366 (Phone)

Kayla Freeman (Contact Author)

University of Georgia, Terry College of Business, Department of Finance ( email )

Brooks Hall
Athens, GA 30602-6254
United States

HOME PAGE: http://https://sites.google.com/site/kaylafreemanfinance/home

Janet Gao

McDonough School of Business ( email )

Washington, DC 20057
United States

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