Open account, import decision and financial constraints: A cross‐country firm‐level study

Abstract

AbstractThis paper uses cross‐country firm‐level data to investigate the influence of an open account on import decisions of firms facing financial constraints. In the open account method, buyers pay after shipment. We employ the sector‐location average as an instrumental variable to deal with the endogeneity problem. Our empirical results provide evidence that an open account positively affects import possibility, particularly, in large‐sized financially‐constrained firms. Our findings imply that large‐sized firms possess more bargaining power than small‐ and medium‐sized firms when negotiating payment terms in importing contracts, especially under severe financial constraints. These findings may suggest several vital implications for the import promotion policy.