Abstract
Trade credit is the liquidity provision from suppliers to customers. In this paper, we examine the use of trade credit in the supply chain after customer firm's credit rating being downgraded. We find that trade credit is likely to decrease after customers getting downgraded credit ratings. We further show that suppliers and customers will be both better off in profitability if trade credit increases following customers' credit rating downgrades. Given that the use of trade credit generally has a significant positive effect on suppliers' and customers' profitability, we show that this effect is stronger when customers receive credit rating downgrades. The empirical evidence in our paper suggests that strengthening the financial collaborations in the supply chain is a superior strategy relative to shrinking the financial collaborations under the circumstance that customer firms suffer from a growing financial constraint and financial distress.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
More From: International Journal of Logistics Economics and Globalisation
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.