(Don't) Feed the Mouth that Bites: Trade Credit Spillover through Common Suppliers

74 Pages Posted: 20 May 2024 Last revised: 6 Dec 2024

See all articles by Kayla Freeman

Kayla Freeman

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

Jie He

University of Georgia - Department of Finance

Han Xia

University of Texas at Dallas - Naveen Jindal School of Management

Liyan Yang

University of Toronto - Rotman School of Management

Date Written: December 06, 2024

Abstract

Product market rivals often source upstream inputs from common suppliers, incentivizing strategic demands for trade credit to prevent the shared suppliers from providing liquidity to rivals – i.e., to avoid “feeding the mouth that bites.” We develop a model to illustrate that when government policies strengthen certain customers’ competitiveness, such strategic incentives become aggravated, leading to a spillover effect of these policies. We test the model predictions using manually collected pair-level trade credit data, and show that customers extract trade credit from common suppliers in an effort to divert these suppliers’ liquidity from rivals already benefiting from government policies.

Keywords: Trade Credit, Policy Spillover, Supply Chains, Common Supplier, QuickPay Reform

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Suggested Citation

Freeman, Kayla and He, Jie and Xia, Han and Yang, Liyan, (Don't) Feed the Mouth that Bites: Trade Credit Spillover through Common Suppliers (December 06, 2024). Available at SSRN: https://ssrn.com/abstract=4822786

Kayla Freeman

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

Jie He

University of Georgia - Department of Finance ( email )

B318 Amos Hall
Terry College of Business, University of Georgia
Athens, GA 30602-6253
United States

Han Xia (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Liyan Yang

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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