In-Kind Finance: A Theory of Trade Credit
Top Cited Papers
Open Access
- 1 May 2004
- journal article
- Published by American Economic Association in American Economic Review
- Vol. 94 (3) , 569-590
- https://doi.org/10.1257/0002828041464579
Abstract
It is typically less profitable for an opportunistic borrower to divert inputs than to divert cash. Therefore, suppliers may lend more liberally than banks. This simple argument is at the core of our contract theoretic model of trade credit in competitive markets. The model implies that trade credit and bank credit can be either complements or substitutes. Among other things, the model explains why trade credit has short maturity, why trade credit is more prevalent in less developed credit markets, and why accounts payable of large unrated firms are more countercyclical than those of small firms.Keywords
All Related Versions
This publication has 23 references indexed in Scilit:
- Do Better Institutions Mitigate Agency Problems? Evidence from Corporate Finance ChoicesJournal of Financial and Quantitative Analysis, 2003
- Trade Credit, Financial Intermediary Development, and Industry GrowthThe Journal of Finance, 2003
- Monitoring costs and trade creditThe Quarterly Review of Economics and Finance, 2001
- Trade Credit and Credit RationingThe Review of Financial Studies, 1997
- Product Risk, Asymmetric Information, and Trade CreditJournal of Financial and Quantitative Analysis, 1993
- Looting: The Economic Underworld of Bankruptcy for ProfitBrookings Papers on Economic Activity, 1993
- Vendor FinancingThe Journal of Finance, 1988
- An Optimal Financial Response to Variable DemandJournal of Financial and Quantitative Analysis, 1987
- Taxes and the Theory of Trade DebtThe Journal of Finance, 1984
- A Transactions Theory of Trade Credit UseThe Quarterly Journal of Economics, 1981