Trade credit contracts

L. Klapper, L. Laeven, R. Rajan

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We employ a novel data set on almost 30,000 trade credit contracts to describe the broad characteristics of the parties that contract together and the key terms of these contracts. Whereas prior work has typically used information on only one side of the buyer-seller transaction, we utilize information on both, allowing for the first analysis of buyer-seller pairs. An equally important distinction is that we have multiple contracts for the same buyer or supplier firms, rather than a firm-average response, allowing for the correction of time-invariant firm characteristics that might determine the choice of credit terms. We find that the largest and most creditworthy buyers receive contracts with the longest maturities from smaller suppliers, and that discounts for early payment tend to be offered to riskier buyers.
Original languageEnglish
Pages (from-to)838-867
JournalThe Review of Financial Studies
Volume25
Issue number3
DOIs
Publication statusPublished - 2012

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Trade credit
Buyers
Seller
Suppliers
Maturity
Payment
Firm characteristics
Discount
Credit

Cite this

Klapper, L. ; Laeven, L. ; Rajan, R. / Trade credit contracts. In: The Review of Financial Studies. 2012 ; Vol. 25, No. 3. pp. 838-867.
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Trade credit contracts. / Klapper, L.; Laeven, L.; Rajan, R.

In: The Review of Financial Studies, Vol. 25, No. 3, 2012, p. 838-867.

Research output: Contribution to journalArticleScientificpeer-review

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AU - Laeven, L.

AU - Rajan, R.

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AB - We employ a novel data set on almost 30,000 trade credit contracts to describe the broad characteristics of the parties that contract together and the key terms of these contracts. Whereas prior work has typically used information on only one side of the buyer-seller transaction, we utilize information on both, allowing for the first analysis of buyer-seller pairs. An equally important distinction is that we have multiple contracts for the same buyer or supplier firms, rather than a firm-average response, allowing for the correction of time-invariant firm characteristics that might determine the choice of credit terms. We find that the largest and most creditworthy buyers receive contracts with the longest maturities from smaller suppliers, and that discounts for early payment tend to be offered to riskier buyers.

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